AppLovin stock had another great year: does it have room to run?

AppLovin stock price has had a strong performance this year, continuing a bull run that started a few years ago when it was trading at $9.20. It has jumped to $720, giving it a market capitalization of over $243 billion, up sharply from less than $1 billion. So, will this advertising company continue its bull run?

AppLovin stock has surged as its growth has accelerated 

AppLovin is a top company in the technology and advertising industry, where it provides companies with tools for advertising, monetizing, analytics, and publishing. 

The company’s business has done well in the past few years as the advertising industry maintains its resilience and revenue growth continues.

Data shows that its annual revenue moved from $483 million in 2018 to $4.7 billion, and Wall Street analysts believe that it has more growth to run.

The average estimate among analysts is that its revenue will jump to $5.75 billion this year and $7.8 billion in 2026.

Most importantly, its earnings per share (EPS) is expected to move from $4.53 in 2024 to $9.35 this year and $14.5 in the coming year. Its real numbers will likely be much higher than estimates, as it has a long record of beating estimates.

The most recent results showed that AppLovin’s revenue jumped by 68% in the third quarter of the year to $1.41 billion, with its net income from continuing operations rising by 93% to $836 million.

Valuation concerns remain

AppLovin stock price surge has caught many investors by surprise, with the most notable ones being Muddy Waters, which published a short report. It accused the company of overstating its revenue and violating the terms of service by companies like Google and Meta Platforms. This report led to an SEC investigation on these practices.

The stock has thrived since that report came out in 2024. Still, this surge has led to concerns about the company’s valuation, which has extended.

Data compiled by Seeking Alpha shows that it has a valuation grade of D+. This valuation is based on the view that it has a forward PE ratio of 87, much higher than the sector median of 24. 

The valuation multiple is higher than the five-year average of 33. It is also much higher than other faster-growing companies like Nvidia.

Meanwhile, the forward EV-to-EBITDA multiple of 61, which is higher than the sector median of 20. That is a sign that the company is priced to perfection, meaning that it needs to continue beating analysts’ estimates by far.

Another way to look at the company’s valuation is to use the rule-of-40 approach, which looks at a company’s growth and its margins. In this case, the company’s forward revenue growth is 33%, while its net income margin is 44%, giving it a rule-of-40 multiple of 77%.

Therefore, while the P/E multiple is higher than that of other companies, the rule-of-40 multiple means that it is sending mixed signals.

AppLovin share price technical analysis 

The daily timeframe chart shows that the APP stock price has been in a strong uptrend in the past few months and is now trading at $725, a few points below the all-time high of $742.

It has remained above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control.

The stock has formed a double-top pattern at $725 and a neckline at $490, meaning it may retreat in the coming weeks. 

However, a closer look shows that it may be forming an inverse head-and-shoulders pattern, which is a common bullish reversal sign.

Therefore, the stock may keep rising if it moves above the neckline at $725. A move above that level will point to more gains, potentially to $800.

READ MORE: Cramer recommends trimming exposure to AppLovin stock ahead of S&P 500 inclusion

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