AppLovin Is the Worst-Performing Stock in the S&P 500 This Year. Has the Market Overreacted?
This once-hot growth stock has lost two-thirds of its value this year.
AppLovin (APP) has had a disappointing year so far, with its shares down 65% as of the end of October, making it the worst performer in the S&P 500. The tech stock has been on a slow and painful decline, rather than one big sell-off. The adtech company's business model has been questioned, as concerns about artificial intelligence (AI) disrupting its operations and growth potential have contributed to the decline.
However, AppLovin's business isn't reflecting these concerns, with revenue rising 56% year over year in the first half of the year to $3.8 billion, with a profit margin of 66%. The company is forecasting around $2.1 billion in revenue for the current quarter, with an adjusted margin of 83%. The sell-off may be due to the stock's inflated valuation in the past, which may not have been justified.
With its stock trading at just 18 times its trailing earnings, it's now a more tenable investment compared to its high valuation at the beginning of the year. There may have been some market overreaction, as other software stocks have also faced corrections to their valuations. While there is some risk with the stock, investors willing to take on uncertainty and volatility may consider buying it at these levels.
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