Despite the name, growth stocks don’t always grow. Sometimes they cause a global internet outage and lose half their value in a matter of weeks. In times like these, we’re offered a rare opportunity to see the true meaning of recovery.
After dropping 45% last July, Crowdstrike hit a new all-time high this week. That equates to growth of almost 90% in less than six months. US tech stocks are known for their growth but a recovery like this is a rare thing indeed.
And yet, shockingly, it’s not the fastest-growing stock in the past six months. Both Palantir and Axon Enterprise outpaced it, up 196% and 112% respectively.
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But the absolute winner of the lot is mobile app development and advertising firm AppLovin (NASDAQ: APP). It’s gained 360% since August last year and a mind-blowing 710% in the past 12 months. I don’t know the exact price history of every stock in the world but I’d be surprised if many have achieved anything close.
For context, it took US tech darling Nvidia around 17 months to achieve similar growth. Palantir recently did the same in about 19 months and at one point Tesla climbed 700% in 20 months, between 2020 and 2022.
So what is AppLovin and why’s it not dominating the news like the others?
Mobile gaming and advertising
Launched in 2012, AppLovin releases mobile games and provides tools for developers to monetise their apps. Disappointingly, the name’s not a play on the character ‘McLovin’ from the 2007 movie Superbad. Until last October, it hadn’t done much to grab attention. In early September, the share price was still down 24% from its all-time high of $112 in late 2021.
Then things started happening rapidly. On 7 November, it posted impressive Q3 results that sent its market-cap soaring above $100bn. Revenue increased 39% in the quarter and earnings per share (EPS) reached $1.25 — far ahead of the expected 92c. Over the past two months, Piper Sandler, Wedbush, JP Morgan, Macquarie and Jefferies have all lifted their price targets for the stock, most giving it a Buy or Outperform rating.
Most recently, Goldman Sachs raised its target from $220 to $335. The stock’s currently trading near $360.
The strong performance isn’t unwarranted. Over the past six consecutive quarters, earnings have beat analyst expectations every year — once by as much as 180% (Q2 2023). Revenue’s not far behind, climbing 125% since 2020 and beating expectations each year without fail.
Worth considering?
While much about AppLovin looks impressive, there are risks to consider. Much of its revenue derives from mobile gaming, a relatively new industry that’s highly competitive and lacks a loyal customer base. And a shift in privacy regulations, in particular GDPR in Europe, could derail the company’s ad-driven revenue model.
Looking at ratios, the price is now 100 times higher than earnings, putting it in highly speculative territory. At that level, the chance of a correction increases dramatically.
So yes, it’s a fairly new high-flying company that could easily be the next big thing. But it could also be the next big failure. For that reason, it doesn’t appeal to a risk-averse investor like me. However, I’m certainly interested to see where it goes.
