Should You Buy the Dip in Duolingo?

: DUOL | Duolingo, Inc. News, Ratings, and Charts

DUOL – Even though education company Duolingo (DUOL) had an impressive stock market debut in July 2021, it is currently trading 22.1% below its high since then. Let’s find out if it is wise to buy in the dip in the stock now.

Language app company Duolingo, Inc. (DUOL) made its stock market debut on July 28, 2021, and soared nearly 35%, opening at $102 per share. It has approximately 40 million active users and 500 million app downloads. However, the stock has lost 11.2% over the past month to close yesterday’s trading session at $142.49. In addition, it is currently trading 22.1% below its all-time high of $205, which it hit on September 22, 2021.

The company’s losses widened in the second quarter, and it is expected to continue reporting losses in the upcoming quarters. Also, its trailing-12-month net income margin, ROTC, and ROA are negative compared to the industry averages of 6.29%, 7.56%, and 6.28%, respectively. So, DUOL’s near-term prospects look bleak.

Here’s what could shape DUOL’s performance in the upcoming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the fiscal second quarter ended June 30, 2021, DUOL’s revenue surged 47% year-over-year to $58.80 million. The company’s gross profit increased 51.3% year-over-year to $42.67 million.

However, its operating expenses for the quarter increased 53.4% year-over-year to $43.14 million. In comparison, its operating loss came in at $478,000, compared to an income of 82,000 in the prior-year period. Its net loss came in at $176,000, compared to an income of 40,000 in the year-ago period.

China Worries

DUOL’s app has been delisted from several Chinese app stores recently. As Beijing’s broad mandate required ed-tech firms to become non-profit, it has banned foreign curriculums, imported textbooks, and hiring foreign teachers. This is expected to hurt the company’s revenues.

Stretched Valuation

In terms of forward P/CF, DUOL’s 747x is 5,740% higher than the industry average of 12.79x. Likewise, its forward P/S of 22.55x is 1,769.6% higher than the industry average of 1.21x. Moreover, the stock’s EV/S of 23.81x is 1,568.4% higher than the industry average of 1.43x.

POWR Ratings Reflect Bleak Prospects

DUOL has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. DUOL has a D grade for Growth. This is justified as analysts expect its EPS to remain negative in fiscal 2021 and 2022.

DUOL has a D grade for Value, in sync with its higher-than-industry valuation ratios. In addition, the stock has a D grade for Stability.

We’ve also rated DUOL for Quality, Momentum, and Sentiment in addition to the POWR Ratings grades I’ve just highlighted. Click here to get all the DUOL ratings.

Moreover, DUOL is ranked #105 of 155 stocks in the Software – Application industry.

Bottom Line

DUOL’s near-term prospects look bleak as its monthly active users were 37.9 million in the second quarter, down 3% from the prior year quarter. Also, analysts expect its EPS to remain negative in the current year and next year. So, the stock looks overvalued at the current price level and is best avoided now.

How Does Duolingo (DUOL) Stack Up Against its Peers?

While DUOL has an overall POWR Rating of D, you might want to consider investing in the following Software – Application stocks with an A (Strong Buy) rating: Open Text Corporation (OTEX), Commvault Systems, Inc. (CVLT), and National Instruments Corporation (NATI).

 


DUOL shares were unchanged in after-hours trading Wednesday. Year-to-date, DUOL has gained 1.76%, versus a 17.46% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
DUOLGet RatingGet RatingGet Rating
OTEXGet RatingGet RatingGet Rating
CVLTGet RatingGet RatingGet Rating
NATIGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

10 Best POWR Ratings Stocks

Investors love using our POWR Ratings to track down stocks likely to outperform the S&P 500 (SPY). However, on any given day there are over 1,300 that are Buy rated. This leads customers to reach out to us to discover which are the BEST of these stocks. Today I share the answer including details on the current 10 best POWR Ratings stocks. Get the rest below...

:  |  News, Ratings, and Charts

Are Stocks Ready to Break to New Highs?

The stock market (SPY) is on a 5 day winning streak and now less than 1% away from the all time highs. This quickly shakes off weeks of painful pullbacks and volatility. Is the market truly ready to ascend to new heights or is this another fake out before the next leg lower? Find out the rest below...

:  |  News, Ratings, and Charts

TTSH is this Week’s Featured Stock 

The Tile Shop Holdings (TTSH) is a leading specialty retailer of manufactured and natural stone tiles. The company has staged an impressive earnings turnaround. Read more to find out why the stock is a good buy into year-end.

:  |  News, Ratings, and Charts

Buy These 3 Tech Stocks Before They Soar Further

Tech stocks, which were underperformers at the start of the year, have made their way back as investors have been buying on the dip. Many of these stocks, which include Applied Materials Inc. (AMAT), KLA Corporation (KLAC), and Amdocs Limited (DOX) are currently in an uptrend and are expected to continue this momentum.

:  |  News, Ratings, and Charts

TTSH is this Week’s Featured Stock 

The Tile Shop Holdings (TTSH) is a leading specialty retailer of manufactured and natural stone tiles. The company has staged an impressive earnings turnaround. Read more to find out why the stock is a good buy into year-end.

Read More Stories

More Duolingo, Inc. (DUOL) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All DUOL News