Summer Series: Appen (ASX: APX)

In by EquityMates1 Comment

In this episode we continue with our 2019/20 Summer Series, where we take a shallow-dive into companies that have been selected by the Equity Mates community. We had 180 submissions for companies to explore, so randomly picked 10.

The idea of these episodes is to show how you can begin to research a company, where to look for information and what are some of the key things to consider.

For this episode we are looking at one of the hottest stocks on the Australian market, one of the fabled WAAX stocks – Appen. The company sells data sets to train artificial intelligence and machine learning algorithms and has seen their share price rise 85% in 2019.

In this episode we:

  • discuss what the company does
  • take a look at their financial position and financial summary
  • breakdown some key elements of their business model
  • have a crack at a valuation
  • close with a fun fact

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  1. Hi guys,
    Excellent podcasts! I started listened to you in December, and I was starting to catch up with your old ones, but I had to jump back to your summer series when I saw they were about valuations.
    On this one in particular, Appen (Ah-pen or Ay-pen), I have a question:
    I was following your recommendation about using online calculators, instead of spreadsheets, particularly (and indeed, it makes it much easier). However, since I already had a DCF spreadsheet ready for Appen, I was trying to compare my valuation with gurufocus’s calculation, using your parameters (EPS 0.41, discount rate 10%, inflation 3%, etc).
    In the end, the only way I match the calculation of Fair Value of 26.16 is if I enter 5 years of growth at 60% and “additional” 10 years of Terminal Growth at an inflation rate of 3%. That is, a total length of 15 years.
    And only with a period of 15 (5 years of 60% increases and 10 years with 3% increases) my Excel spreadsheet matches the 26.16.
    So my question is, did you intend to valuate APPEN as 10 years (5 and 5)? or 15 as (5 and 10) for growth and terminal correspondingly?
    That leads me to another question, I noticed the periods of valuation you used seemed to differ between types of companies (I think for SOL you used 20 years (10 years of 10% growth and 10 years terminal of 3%), was it because for an IT company you assess shorter periods (10 or 15 years depending on answer to prior question) and 20 years for an “Energy” company? Is there any standardised table recommending specific periods for types of companies (e.g., mining, industrial, etc)?

    Looking forward to listening to your next podcast!

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