Duolingo, Inc.'s (NASDAQ:DUOL) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Duolingo, Inc. (NASDAQ:DUOL) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 59%.

After such a large jump in price, given around half the companies in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Duolingo as a stock to avoid entirely with its 22.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Duolingo

How Has Duolingo Performed Recently?

Duolingo certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Duolingo's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Duolingo's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. Pleasingly, revenue has also lifted 205% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 35% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 22% per year, which is noticeably less attractive.

In light of this, it's understandable that Duolingo's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Duolingo's P/S

Duolingo's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Duolingo shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Duolingo is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Duolingo's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.