Is Duolingo’s Recent 33% Pullback a Sign of Opportunity in 2025?

If you are debating what to do with Duolingo stock right now, you are definitely not alone. Investors have watched DUOL ride some wild waves in recent months, swinging sharply on both bullish excitement and the occasional bout of market caution. In just the past year, shares have soared by 67%, and if you zoom out to a three-year window, the total return stands at an astonishing 256%. Yet, those numbers only tell part of the story. Over the last 90 days, the stock pulled back by more than 33%, highlighting the risks that come hand-in-hand with rapid growth stocks, especially as broader tech and consumer sentiment shifts.

What is driving these moves? On the fundamental side, Duolingo continues to deliver double-digit revenue and net income growth annually. Most recently, some market jitters have cropped up around broader tech sector volatility and questions about the sustainability of Duolingo’s torrid growth pace. Still, analysts remain bullish on its long-term prospects, with the consensus price target sitting a substantial 43% above current levels. That optimism is echoed in the company’s value score, which counts three out of six key checks as signs of undervaluation for a score of 3. This result is far from speculative, but not a slam dunk either.

So, how should you think about Duolingo’s value in the current environment? Up next, we will dig into classic valuation methods, breaking down price targets, intrinsic value, and more. And stay tuned for additional insight as there may be an even better way to understand what DUOL is truly worth in today’s market.

Duolingo delivered 67.1% returns over the last year. See how this stacks up to the rest of the Consumer Services industry.

Approach 1: Duolingo Cash Flows

The Discounted Cash Flow (DCF) model estimates what a business is worth today by projecting its future free cash flows and then discounting them back to present value. For Duolingo, the current Free Cash Flow stands at $315.1 million. Analysts expect this number to grow significantly and project Free Cash Flow to reach nearly $1.33 billion by 2035 based on a combination of analyst forecasts and estimated growth rates.

Using a two-stage Free Cash Flow to Equity valuation, the estimated intrinsic value for Duolingo is $521.08 per share. When compared to the stock’s current trading price, this DCF valuation suggests that Duolingo is 34.6% undervalued. There is a notable margin between the market price and what the company’s future earnings potential might imply.

In simple terms, the analysis points to significant upside for Duolingo from current levels, at least through the lens of discounted cash flows.

Result: UNDERVALUED

Our DCF analysis suggests Duolingo is undervalued by 34.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Duolingo Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation method, particularly for companies like Duolingo that are now profitable. This metric helps investors weigh how much they are paying for each dollar of earnings, making it especially relevant for assessing established, growth-driven technology firms.

The "right" PE ratio is influenced by expectations of future earnings growth and the level of risk in the business. Fast-growing, innovative companies typically command higher PE multiples because investors are willing to pay for anticipated rapid earnings expansion. However, this also introduces higher risks if that growth does not materialize.

Duolingo currently trades at a PE ratio of 133.2x, which is substantially above both the Consumer Services industry average of 19.9x and the peer average of 37.1x. Simply Wall St’s proprietary Fair Ratio for Duolingo is 45.4x, adjusting for the company’s superior growth prospects, robust margins, market position, and risk profile. Compared with the Fair Ratio, Duolingo's current multiple appears stretched. This suggests that investors are paying a significant premium over what is considered justified given the underlying fundamentals.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Duolingo Narrative

Narratives are a fresh way to invest, helping you connect the bigger story and outlook you see for a company like Duolingo with the numbers behind it, such as your fair value and forecasts for revenue, earnings, and margins.

Instead of relying solely on traditional metrics, a Narrative lets you link your perspective about Duolingo’s future, whether that is excitement about its international expansion or concerns over competition and regulation, directly to a financial forecast and fair value estimate.

On Simply Wall St, Narratives are powerful yet simple tools that millions of investors use to track their views, compare with consensus, and see how their story stacks up against others in the community.

Narratives also make deciding if Duolingo is a buy, hold, or sell easier. You can see your calculated Fair Value alongside the current Price, instantly highlighting opportunities or dangers as new earnings or news updates come in.

For example, you might be very bullish on Duolingo and estimate a fair value as high as $600 per share based on rapid growth in Asia. A more cautious investor's Narrative might set it at just $390, due to concerns about slowing user growth or regulatory risks.

Do you think there's more to the story for Duolingo? Create your own Narrative to let the Community know!

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.

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