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

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 has 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 possesses 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.

The post Would Warren Buffett buy Appen shares after a 99% drop? appeared first on The Motley Fool Australia.

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More reading

• Why Appen, Baby Bunting, Cooper Energy, and Liontown shares are sinking today
• Appen shares crash 37% on huge Google blow

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.

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