The Appen share price is down 9% today. Here’s why

The Appen Ltd (ASX: APX) share price is having one of those not so good, very bad kinds of days. Appen shares are down 9% at the time of writing to $35.17 each. That’s a fairly steep decline for a single day’s trading, especially after the company’s share price dropped more than 11% just yesterday following Appen’s release of its full-year earnings for the 2020 financial year.

So what’s going on with the Appen share price?

What is Appen?

Appen is known as one of the ASX’s highest-flying tech shares, so much so that is is one of the A’s in the WAAAX shares – the ASX’s answer to the US FAANG stocks. Appen specialises in making human-annotated datasets. Basically, that means Appen makes data that helps computers understand human interaction in better ways. Its applications range from smart assistant’s like Siri and Alexa to speech-to-text dictation and translation services.

Why the Appen share price is plunging today

As I mentioned earlier, yesterday Appen reported its earnings to investors, and it didn’t go down too well. Despite the company posting 25% revenue growth, a 20% increase in profits and a 12.5% increase to its dividend, investors evidently expected better things. Appen shares opened more than 15% lower yesterday and had only recovered by 4.5% by the end of the trading day.

It seems investors have woken up this morning and decided that wasn’t enough. Perhaps today’s moves are traders taking a bit of profit off the table after buying in at market open yesterday. Perhaps it was decided that Appen’s numbers don’t justify the company’s price-to-earnings (P/E) ratio of 102. Or perhaps investors didn’t like that Appen only reaffirmed its guidance for FY21 rather than bumping its expectations up.

It’s hard to say exactly what is causing today’s second round of selling. But these things tend to happen from time to time with these lofty growth shares. There are (and have been for a while) a lot of expectations baked into Appen’s share price. When there is even a hint of a hiccup, these kinds of sell-offs are not uncommon for market darling growth shares.

Some perspective might be handy as well. Even after this week’s selling, Appen is still trading at levels we only saw a month or 2 ago right now. And back then, Appen was at record highs.

Is Appen a buy after this sell-off?

If you’ve been kicking yourself for missing out on Appen shares and are super-bullish on this company, then perhaps today’s plunge is a good time to buy. But personally, I still think Appen’s shares are priced to perfection, even after today’s sell-off. I’m not interested in paying a 3-digit earnings multiple for Appen, despite its pleasing growth rates. But if you are, then all luck to you!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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