The rapid growth in artificial intelligence (AI) and and machine learning development has seen demand for Appen‘s (ASX:APX) annotated data-sets — used to help ‘train’ such systems — explode in recent years.

With customers including most of the world’s technology giants, Appen has seen sales grow almost five-fold since 2015. This has underpinned a substantial lift in market value, with shares up an even more impressive ~15x in that period.

With the company today upgrading its guidance for the full year, it looks like the future remains bright fro shareholders.

Appen is now expecting to post earnings before interest, tax, depreciation & amortisatiom (EBITDA) of between $96m – $99m for the year ending 31 December 2019. That’s based on the AUD/USD exchange rate of 0.74, but could come in a further $1m – $1.5m if the dollar stays at current levels.

The current forecast represents a ~11% improvement on previous expectations, and a ~30% increase to the last year’s result. Appen said the increase was due to a lift in sales and margins from existing clients within its Relevance segment.

The company also reinforced its “high conviction” for the recent acquisition of Figure 8 and reaffirmed expectations for between $30m and $35m in annual recurring revenue (ARR).

This guidance puts shares in Appen on an EV/EBITDA ratio of roughly 30. Applying some assumptions on margins, we can infer a forward price to sales of 6.3 and a forward P/E of roughly 50.

Next to more established, slower growing companies, those ratios look reasonably lofty. Then again, this is a business whose operating profits have increased 1740% in the last five years, and that continues to record high double digit growth. The business has a super-strong balance sheet, a leading market position and is backed by a stiff industry tailwind.

Risks include the loss of a major customer or a material slow-down in growth. While there’s a positive and not-unreasonable narrative to support Appen’s share price, investors must be mindful that the company is susceptible to a reasonably nasty re-rate if it doesn’t deliver to expectations in the coming years.

Ranked #7 on Strawman, Appen is certainly a community favourite and has already returned over 65% since being added to the Strawman Index last year. Interestingly, shares remain below the community consensus valuation.

Visit the Appen company page to discover more.

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