Would Warren Buffett buy Appen shares after a 99% drop?

Appen shares are at historic lows, but is this an opportunity?

| More on:
A young man goes over his finances and investment portfolio at home.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

Things have dramatically gone from bad to worse for Appen Ltd (ASX: APX) shares in 2024 so far.

Not that it looks like it from today's share price movements. At present, the ASX artificial intelligence (AI) share has rocketed a seemingly lucrative 15.8% to 33 cents a share.

Saying that, Appen is still down almost 30% from where it was last Friday. The company has also lost almost 74% of its value in 2024 alone (just 24 days of it anyway).

If you have been unfortunate enough to have held Appen shares since the company's August 2020 peak of above $35 a share, you'd now be looking at a loss of over 99%.

This week's losses seem to be a result of the less-than-illustrious announcement Appen made on Monday.

As we covered at the time, this saw the company admit that it had lost a valuable contract with Google, owned by global tech titan Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL). Google has terminated its global inbound services contract with Appen and all joint activity is set to be wound up by 19 March this year.

As we covered at the time, Appen made US$82.8 million in revenue from Google over FY2023. So this was a huge loss for the company and explains the massive punishment investors have inflicted on Appen shares as a result.

So this brings us to the question: Are Appen shares a buy after losing more than 99% of their value over the past three years or so?

After all, legendary investors like Warren Buffett tell us that the best buying opportunities can come when a company is "on the operating table".

Would Warren Buffett buy Appen shares today?

Well, I don't think he would. In fact, I think it would take around five seconds for Buffett to throw the idea in the proverbial trashcan.

Buffett has not been secretive about the kinds of companies he likes to invest in over the years. He looks for strong companies in a financially sound position, that clearly possess a moat, or intrinsic competitive advantage.

Appen arguably has none of these traits. It is anything but financially sound, having tapped investors twice over the past 12 months for additional capital. Any investor who acceded to these requests would be ruing their decision today, given the shares have continued to crater in value.

Additionally, it's arguable that the big tech companies that Appen caters to are more and more reluctant to continue the relationship, going off of Google's decision.

As my Fool colleague Tristan posited last year:

Appen has gone through so much pain since 2020. It says it's going through headwinds, yet the large US tech players seem to be going from strength to strength. Appen's appeal seems to have been lost for both clients and investors.

I couldn't agree more. And I suspect Buffett would feel the same. As he's often said, Buffett likes to choose the six-inch bar to step over, rather than the six-foot bar. An Appen bull case looks like a sixty-foot bar from where I'm standing.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet and Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Appen, and Berkshire Hathaway. The Motley Fool Australia has recommended Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A woman holds a glowing, sparking, technological representation of a planet in her hand.
Technology Shares

These ASX tech shares could be set for a big year

Analysts have good things to say about these top stocks.

Read more »

A group of six work colleagues gather around a computer in an office situation and discuss something on the screen as one man points and others look on with interest
Technology Shares

3 amazing ASX 200 tech shares to buy before it's too late

Analysts are feeling bullish about these names. Let's find out why.

Read more »

Man on his laptop standing next to data centres.
Technology Shares

Can NextDC capitalise on South East Asia's data centre boom?

NextDC’s recent Malaysian contract win represents a significant milestone for the data centre company.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Can Codan shares hit $20 this year?

How high can this tech share fly?

Read more »

Happy man working on his laptop.
Technology Shares

Can Xero shares surpass $200 in 2025?

Let's see what analysts are saying about this market darling.

Read more »

A player pounces on the ball in the scoring zone of the field.
Technology Shares

Why this ASX sports tech share looks like a winner

Catapult Group has been delivering outstanding returns for investors. Will the winning streak continue?

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Why this top fund manager thinks this ASX tech share can continue rising

Investors can be excited about this stock.

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Broker Notes

Macquarie tips 28% upside for this ASX All Ords tech stock

Let's see what the broker is saying about this growth stock.

Read more »