Is ASX Tech Stock Appen a Buy Right Now?

Last Thursday, shares in tech stock Appen (ASX: APX) rose nearly 25 per cent on opening before entering a trading halt after receiving a non-binding takeover offer from Telus International with an indicative offer of $9.50 a share. As Appen had closed at $6.40 on Wednesday, Telus offered a 48 per cent premium on the current share price.

Prior to Thursday, Appen had been falling heavily for almost two years and was down around 85 per cent of its all-time high in August 2020 and over 40 per cent since 1 January this year. While it is reasonable to assume that the stock has been oversold in the recent tech sector meltdown, it makes sense that Appen didn’t jump at the takeover offer and instead requested a trading halt so the board could carefully consider their next steps.

Telus rescind their takeover offer?

In a surprising move late on Thursday, Telus rescinded its non-binding offer leaving shareholders, who bought the day prior, high and dry. At the time, I believed Telus was being very opportunistic given the current market conditions, particularly as the tech sector haven fallen over 10 per cent in May and over 30 per cent for the year. I also believe the company is worth more because if it has not already bottomed, it is very close to it and likely to start rising in the not too distant future.

So why did Telus rescind the offer? Maybe it got cold feet or as some analysts are speculating, it didn’t like the response it got from the Appen board on Thursday when the company revealed a decline in revenue and earnings although I doubt this would be the case given that Telus had been in private talks with Appen for weeks prior to the takeover offer leaking to the public. Sadly, investors in Appen were left in a state of shock on Friday, as the share price fell 20 per cent on market open.    

If you owned Appen prior to Thursday, you would be largely unaffected by what transpired last week, although it does suggest that Appen shares may be undervalued. Last week also highlights how risky it can be to follow announcements and speculate on stocks in the hope of making a quick profit.

What were the best and worst performing sectors last week?

The best performing sectors included Energy up 2.14 per cent followed by Materials up 1.78 per cent and Financials up 1.31 per cent. The worst performing sectors included Information Technology down 3.43 per cent followed by Consumer Staples down 2.20 per cent and Health Care down 1.48 per cent.

The best performers in the S&P/ASX top 100 stocks included Tabcorp Holdings up 10.62 per cent followed by Allkem Limited up 7.36 per cent and Virgin Money up 6.72 per cent. The worst performing stocks included Block down 8.26 per cent followed by Nine Entertainment down 7.82 per cent and BHP down 7.44 per cent.

What's next for the Australian stock market?

While the market traded higher last week, it really lacked a sense of direction, which is not surprising given the continued volatility we are experiencing. Remember, as I stated previously, this doesn’t necessarily mean the market will be bearish, nor does it mean it will be bullish, it just means that right now it is time to be patient. I expect the volatility will ease over the next two weeks and that the All Ordinaries Index will unfold in a more sustained move.

In my last report, I indicated that I still believed most, if not all, of the fall had already occurred but that this was unconfirmed, which is still the case. The more our market rises over the next few weeks, the higher the probability it will hold above the recent low of 12 May at 7,157 points before turning to test the low, which it will do at some point in time. If the market does fall away over the next few weeks, it needs to hold above the low of 12 May if we are to see a bullish market into the third quarter of 2022.

While there are opportunities currently unfolding in the market, I continue to urge investors to exercise caution, as the current mood can change quickly. So, until a direction is confirmed, it is wise to sit back and wait until the dust settles.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.