Duolingo’s stock price has taken a beating over the past six months, shedding 68.7% of its value and falling to $98.19 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Given the weaker price action, is now the time to buy DUOL? Find out in our full research report, it’s free.
Why Are We Positive On Duolingo?
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ: DUOL) is a mobile app helping people learn new languages.
1. Monthly Active Users Skyrocket, Fueling Growth Opportunities
As a subscription-based app, Duolingo generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.
Over the last two years, Duolingo’s monthly active users, a key performance metric for the company, increased by 677% annually to 133.1 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction. 
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Duolingo’s EPS grew at 199% compounded annual growth rate over the last three years, higher than its 41.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Duolingo has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 35% over the last two years.
Final Judgment
These are just a few reasons Duolingo is a rock-solid business worth owning. After the recent drawdown, the stock trades at 12× forward EV/EBITDA (or $98.19 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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