Duolingo stock: extremely oversold as falling wedge forms

Duolingo stock price has slumped this year and is now hovering near its lowest level since February 2023.

It has erased most of the gains made in the past few years, with its valuation falling from over [MONEY value="27000000000" currency="usd" notation=long" replace="false"] to [MONEY value="4630000000" currency="usd" notation=long" replace="false"] billion today. 

Duolingo stock has slumped amid AI disruption

Wall Street investors are evaluating which companies may be disrupted by the artificial intelligence (AI) boom, and Duolingo has emerged as one of the most mentioned because of the vulnerability of its business.

As AI tools become more advanced, analysts believe that it will be possible to learn foreign languages easily. 

As a result, the company is boosting its investments to offset the potential weakness, including by investing in other areas like music, chess, and mathematics.

The most recent results showed that its business was still growing, with more users joining its platform. Its daily active users rose by 30% YoY to 52.7 million, while its paid subscribers grew by 28% to 12.2 million. This growth is a sign that there is still demand for its products and services.

READ MORE: Duolingo stock is crashing and T-Mobile may be to blame

The company’s revenue jumped by 35% in the fourth quarter to $282.9 million, bringing its annual revenue to over $1.03 billion, up by nearly 40% on an annual basis.

While analysts expect its business to slow, the average estimate is that it will have double-digit growth in the foreseeable future.

The average estimate is that its revenue will grow by 26% this quarter to $268 million and by 16% this year to $1.21 billion.

Most notably, there are signs that the company’s business has become a bargain this year, with its forward price-to-earnings (PE) falling to 13.3, much lower than the sector median of 14.25. Its five-year average stands at 270, while the S&P 500 Index has a multiple of 19.9.

The company is also a bargain based on the rule-of-40, which looks at companies revenue growth and margins.

Its forward revenue growth stands at 16%, while its net income margin is 39%, giving it a multiple of 55%.

Duolingo share price technical analysis 

DUOL stock chart | Source: TradingView 

The weekly chart shows that the DUOL stock price has crashed in the past few months, moving from a record high of $546 in May to $98 today.

This freefall happened amid fears of AI disruption and the fact that the management is boosting costs to gain an edge.

The stock has tumbled below all moving averages, while the Supertrend indicator has remained in the red recently.

Duolingo has also become highly oversold, with the Relative Strength Index (RSI) dropping to the extreme oversold level 24.

The Stochastic Oscillator has also dropped to its lowest level since 2023. It has also formed a large falling wedge pattern, a common bullish reversal sign.

Therefore, the most likely Duolingo stock price forecast is bullish, with the next key target being the Major S&R Pivot Point at $250, up by 155% from the current level.

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