Our venerable tech darlings are on the nose today with the share prices of these high flyers taking a tumble in late afternoon trade.
The WiseTech Global Ltd (ASX: WTC) share price crashed 4.3% to $18.23, the Xero Limited (ASX: XRO) share price shedding 2.8% to $47.70 and the Altium Limited (ASX: ALU) share price shed 2.2% $33.30 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is wallowing 1.2% in the red.
But it's the Appen Ltd (ASX: APX) share price that's come into focus as UBS downgraded the stock to "neutral" after its massive 22% price surge yesterday on the back of a solid full year 2018 result (its financial year is the same as the calendar year).
Too much of a good thing
The Appen's consensus-beating full-year earnings before interest, tax, depreciation and amortisation (EBITDA) figure wasn't enough to convince UBS to keep its "buy" recommendation on the stock although the broker did up its price target to $24 from $16 a share.
That still leaves a bit of upside for the APX share price, which dipped 1.3% to $22.61 as we head into the market close, and the interesting thing is that UBS acknowledges the artificial intelligence stock has the potential to beat market expectations yet again with management forecasting an underlying EBITDA of $85 million to $90 million.
"We note 2H18 EBITDA of $45.7m (+79% hoh) suggests risks remain skewed to the upside for FY19E if momentum remains," said UBS.
What's already in the share price?
But the good news seems factored into the stock as UBS is now assuming a FY19 EBITDA of $92 million and even then, the stock looks fairly priced as its trading on a one-year forward price-earnings multiple of 42 times.
While there are a few levers Appen could pull to beat its guidance, UBS pointed out that visibility remains limited.
The fact is, there are many people who want to love the stock but do not know how to given its incredible rally. The Appen share price is up 115% in the past year alone and that's substantially ahead of its cohort, which are up between 50% and 70% over the same period.
Foolish takeaway
The stock is trading more on momentum than fundamentals in my view and that makes me cautious about jumping onto the Appen bandwagon – particularly in this part of the cycle when there's growing risk of a bear market.
I am more in favour of targeting value stocks with a reasonably dependable growth profile for FY19 and FY20 than to chase shooting stars.
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