Let’s talk about the popular AppLovin Corporation (NASDAQ:APP). The company’s shares have seen a decent 15% increase in price over the past few months on the NASDAQGS. While that’s good news for shareholders, the company has traded significantly higher over the past year. Since it’s a large-cap stock with high analyst coverage, one might assume that any recent changes in the company’s outlook are already priced in. However, could the stock still be trading at a relatively cheap price? Today, we’ll analyze the most recent data on AppLovin’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for AppLovin
What opportunities does AppLovin offer?
The stock price currently appears reasonable according to our price multiple model, where we compare the company’s price-to-earnings ratio to the industry average. In this case, we used the price-to-earnings (P/E) ratio because there isn’t enough information to reliably predict the stock’s cash flows. We note that AppLovin’s ratio of 31.4x is slightly below its industry peers’ ratio of 34.74x, meaning you’d be paying a reasonable price for it if you buy AppLovin today. And if you believe AppLovin should trade at these levels over the long term, then there isn’t much upside to gain against other industry peers. However, there could be a buying opportunity in the future. This is because AppLovin’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market trend is bearish, the company’s shares are likely to fall more than the rest of the market, creating an excellent buying opportunity.
What does the future of AppLovin look like?
Investors seeking growth in their portfolio should consider a company’s prospects before buying its shares. Although value investors would argue that intrinsic value relative to price is most important, high growth potential at a cheap price would be a more compelling investment thesis. AppLovin’s earnings are expected to double over the next few years, suggesting a very optimistic future. This should lead to stronger cash flows and result in higher share value.
What this means for you
Are you a shareholder? APP’s optimistic future growth seems to be factored into the current share price, as shares trade around industry price multiples. However, there are other important factors we haven’t considered today, such as the company’s financial strength. Have these factors changed since you last covered APP? Will you have enough confidence to invest in the company if the price falls below the industry P/E?
Are you a potential investor? If you’ve been keeping an eye on APP, now may not be the best time to buy, with the stock trading around industry price multiples. However, the positive outlook is encouraging for APP, meaning it’s worth taking a closer look at other factors such as the strength of its balance sheet in order to take advantage of the next price dip.
Remember that when analyzing a stock, it is important to consider the risks involved. At Simply Wall St, we have found 2 warning signs for AppLovin and we think they deserve your attention.
If you are no longer interested in AppLovin, you can view our list of over 50 other stocks with high growth potential on our free platform.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
