It's been a mediocre week for Appen Limited (ASX:APX) shareholders, with the stock dropping 11% to AU$3.89 in the week since its latest half-yearly results. It was a credible result overall, with revenues of US$182m and statutory earnings per share of US$0.23 both in line with analyst estimates, showing that Appen is executing in line with expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Appen after the latest results.
Taking into account the latest results, the eleven analysts covering Appen provided consensus estimates of US$408.0m revenue in 2022, which would reflect a measurable 5.9% decline on its sales over the past 12 months. Earnings are expected to tip over into lossmaking territory, with the analysts forecasting statutory losses of -US$0.06 per share in 2022. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$420.6m and earnings per share (EPS) of US$0.029 in 2022. The analysts have made an abrupt about-face on Appen, administering a small dip in to revenue forecasts and slashing the earnings outlook from a profit to loss.
The consensus price target fell 5.7% to AU$4.47, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Appen, with the most bullish analyst valuing it at AU$6.60 and the most bearish at AU$3.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Appen's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 11% by the end of 2022. This indicates a significant reduction from annual growth of 23% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 11% per year. It's pretty clear that Appen's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Appen dropped from profits to a loss next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Appen's future valuation.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Appen going out to 2024, and you can see them free on our platform here..
We don't want to rain on the parade too much, but we did also find 1 warning sign for Appen that you need to be mindful of.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here