AppLovin Corporation APP has been one of the standout performers in 2024, with its stock price surging by an impressive 116.6% year to date. This rise has significantly outpaced the 13% rally seen in the industry.
As of the last trading session, the stock closed at $86.31, close to its 52-week high of $93.7. APP is trading above its 50-day moving average, indicating a bullish sentiment among investors.
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APP's performance is notably stronger than its competitors in the in-game mobile advertising space. Alphabet Inc. GOOGL has surged 6.4%, and Meta Platforms META has gained 43% over the same period.
However, the key question for investors now is whether the stock’s growth trajectory justifies a “buy” at its current level or if waiting for a pullback might offer a better entry point.
APP’s Strong Growth Potential Despite Industry Risks
AppLovin’s recent financial results demonstrate the company’s strong fundamentals and growth potential. The introduction of its AXON 2.0 technology and strategic expansion in gaming studios have significantly boosted revenue growth. The company reported a 76% year-over-year revenue increase in 2023, along with a 41% rise in adjusted EBITDA. Its financial momentum carried into the second quarter of 2024, with a 44% year-over-year revenue jump and an astounding 286% increase in net income. These figures underline AppLovin’s operational efficiency and effective strategic execution.
Although there are potential risks, such as the possibility of slowed growth in the in-game advertising segment and the uncertain impact of non-gaming ventures, AppLovin appears well-positioned for continued growth thanks to its technological advancements and strategic expansion efforts.
APP’s Strong Liquidity Ensuring Obligations are Met
APP’s liquidity position is robust, with a current ratio of 2.28 at the end of the second quarter of 2024 compared to the industry’s 1.02. A current ratio above 1 indicates that the company can comfortably meet its short-term obligations.
APP’s Promising Top and Bottom-Line Prospects
The Zacks Consensus Estimate for APP’s 2024 earnings is pegged at $3.48, indicating 255.1% growth from the year-ago level. Earnings in 2025 are expected to increase 18.7% from the prior-year actuals. The company’s sales are expected to increase 35.1% and 13.4% year over year, respectively, in fiscal 2024 and 2025.
Analysts' Confidence Reflected in Rising Estimates
In the past 60 days, six estimates for 2024 earnings have been revised upward, with no downward revisions, reflecting strong analyst confidence in the company. For 2025 as well, six estimates moved north over the past 60 days versus no southward revisions. This indicates strong confidence among analysts in the company's ability to improve its financial performance soon.
APP Stock is Cheap
Despite the impressive rally so far, AppLovin’s stock remains relatively inexpensive, indicating potential for further appreciation. If we look at the forward 12-month Price/Earnings ratio, APP shares currently trade at 21.98X forward earnings, well below the industry’s 32.42X.
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Based on trailing 12-month EV-to-EBITDA, APP is currently trading at 47.31X close to the industry’s 19.35X.
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“Must Buy” Recommendation
Given AppLovin’s impressive financial performance, growth potential, and undervalued stock price, it presents a strong buying opportunity for investors. The combination of strong revenue and earnings growth, coupled with increasing analyst confidence, makes APP a compelling investment. While the stock has surged considerably, its current valuation suggests there is still room for further upside.
APP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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AppLovin Corporation (APP): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
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