Care to elaborate? I prefer to trust cold hard research rather...

Care to elaborate? I prefer to trust cold hard research rather than "feel".

The point of maximum pessimism is the point of maximum opportunity.

At current prices, Appen is trading on circa 23x CY20 EV/EBITDA. The industry is growing at 28% p.a. and Appen's historical growth track record is exemplary. I believe that Macquarie has significantly messed this up, they have confused a re-prioritisation of client work due to COVID priorities with rising pricing pressure and a change in competitive dynamics.

History suggests that if you pick i) a fast-growing industry and ii) the market share leader in that industry, you will do very well indeed over the long term. This is what is known as a star business. It is the combined effect of niche leadership and high niche growth that makes a star venture so wonderful.

"Leadership means that the company and its products are preferred by the niche’s customers. Like Apple, therefore, the company’s products may command a price premium. But even if they don’t, the high volume should mean that a market leader has lower costs than its rivals. A leading firm should have higher prices, and/or lower costs, and therefore higher profits and cash flow, than a similar business which is a follower.Market growth compounds those profits and cash over time. As Albert Einstein said, the strongest force in the universe is compound interest, a concept so simple that very few people really understand it (I said that last bit, not dear Albert)." - Richard Koch

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Are there pitfalls for a star venture? Only one: the trap is that a star stops being a star by losing leadership in its niche. At this stage, I have seen nothing to believe that Appen is losing its #1 market share position. In fact, I think their stranglehold will strengthen over time.

Personally, I am very content to be buying at these prices for a medium-term hold.

Time will tell all.

T.E.P.