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


Bullish or Bearish Stock Set Up?

The S&P 500 (SPY) record highs sounds pretty darn bullish on the surface. Yet as we dig below the surface there are some curious signals that point more Risk Off. This is especially true as we come into the next Fed meeting after a round of data that points to inflation still being too high...only further delaying the first rate cut. What does this all mean for stocks from here? Steve Reitmeister offers his latest views on the market outlook along with a preview of his top picks to stay on step ahead of the market. Read on for more...

Unveiling Adobe (ADBE) Q2 Earnings: What Lies Ahead for Investors?

Software giant Adobe Inc. (ADBE) has released its second-quarter earnings, revealing double-digit growth in both revenue and profits. Yet, concerns arise around the complexities of navigating growth in the face of advancing AI technologies. Let’s analyze ADBE’s recent performance and assess key fundamentals to uncover what lies ahead for investors…

3 AI Stocks to Invest in for the Next Technological Revolution

The AI market is experiencing a significant growth trajectory, driven by widespread application across various industries. Hence, it could be wise to invest in top AI stocks, Alphabet (GOOGL), Meta Platforms (META), and Alibaba Group Holding (BABA) for the next technological revolution. Read more...

Analyzing Broadcom’s (AVGO) Q2 Earnings: Worth Investing?

Driven by a surge in demand for its AI products, Broadcom (AVGO) reported robust earnings in its latest quarterly results, exceeding expectations on both top and bottom lines. However, is the stock’s recent announcement of a 10-for-1 stock split worth investing in? Keep reading to find out…

Stock Alert: Breakout or Fake Out?

The S&P 500 (SPY) officially made new highs this week. Perhaps a reason to celebrate more gains on the way...or perhaps there are signs this move is hollow leading to more downside soon on the way. To help solve this riddle, 44 year investment veteran Steve Reitmeister shares his views along with a trading plan and top picks to stay on the right side of the action. That is what Steve Reitmeister will cover in his latest commentary below. Read on for more...

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