Is it too late to buy Duolingo stock?

Expert in learning languages Duolingo (NASDAQ:DUOL) he’s been crushing it on Wall Street lately. The company’s stock has rallied 180% since the beginning of 2023, helped by a steady stream of surprising earnings reports.

However, the stock is rising on very high valuation multiples. Investing at 208 times earnings and 15 times sales, many value investors would give Duolingo one quick glance and then slowly back out.

Is Duolingo stock available for purchase today or is it late due to price correction? You can seriously argue either way, but I know which way I lean. Let’s take a look.

Turbulence and variability

Duolingo’s stock chart may be pointing to the sky, but it hasn’t been a smooth ride so far. In January and May 2024, shares fell 15% or more. The company more than doubled the average analyst’s earnings target in its May first-quarter report, but influential market forces have chosen to focus on the moderating revenue growth trend.

This volatility comes from the area of ​​growth stocks with rich valuations. It’s not easy being a green owl with expectations of hypergrowth. Despite these uncomfortable fluctuations, Duolingo continues to prove its worth.

Walking after talking

At the same time, Duolingo is delivering on its growth promises. Over the past three years, annual sales growth has averaged 45%. The company enjoys high user engagement, which often leads to continuous revenue growth for subscription-based business models. Duolingo is adding artificial intelligence (AI) tools to its digital learning experience, with features like natural language AI chats and AI analysis of your mistakes.

Duolingo’s business results look good. Sales are growing rapidly, net profits have remained consistently positive in recent quarters, and cash profits are even richer:

DUOL revenue data (TTM) by YCharts

Don’t forget that Duolingo addresses a very large global market for online education services. It provides a unique, slightly whimsical and user-friendly learning experience, setting it apart from other e-learning platforms. The company already offers math and music classes, and I imagine the course offering will become much broader over time.

Is Duolingo a buy, sell or hold today?

Every investor is different and your mileage may vary. For me, Duolingo is a valued long-term investment and I wouldn’t hesitate to buy more shares in June 2024.

I understand if you can’t go beyond the high valuation numbers. The current price suggests impressive long-term gains based on current growth trends. This is not the same as a proven ability to actually generate significant profits and cash flow.

However, Duolingo is already more profitable than most of its growth stock competitors, and many signs point to greater profits in the future. Course selection, subscription plans and learning tools are subject to development and new ideas. As founder and CEO Luis von Ahn said: “We are still early in our monetization journey and are exploring many ways to increase bookings.”

Given Duolingo’s impressive growth trajectory, strong user engagement, and strategic AI improvements, the stock seems like a compelling idea for growth-minded investors. It’s not every stock buyer’s cup of green tea, but Duolingo certainly works for me. I have high hopes for this digital learning resource in the long run.

As a value investor, you don’t even have to feel too guilty about purchasing from Duolingo now. Shares are trading more than 20% below their 52-week highs, so you could argue that they are historically selling at a discount.

Now if you’ll excuse me, I have some Japanese lessons and 2916 days of study to worry about. These gamification tweaks really work for some people.

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Anders Bylund has positions at Duolingo. The Motley Fool covers and recommends Duolingo. The Motley Fool has a disclosure policy.