Reassessing Duolingo (DUOL) Valuation After Recent Share Price Weakness

Simply Wall St.01-21

AdvertisementRecent performance snapshot Duolingo (DUOL) has been on many watchlists after a stretch of weak returns, including a 20% decline over the past month and a 52% drop over the past 3 months....

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With the share price closing at US$148.58, investors are weighing that pullback against Duolingo’s reported US$964.271m in revenue and US$386.018m in net income, as well as its current value score of 3. See our latest analysis for Duolingo. Those shorter term share price declines sit against a mixed backdrop, with a 1 year total shareholder return of 55.95% decline but a 3 year total shareholder return still positive at 74.14%. This suggests recent momentum has been fading as investors reassess growth and risk. If Duolingo’s recent pullback has you reassessing your watchlist, it could be a good moment to widen the lens and check out high growth tech and AI stocks as another source of ideas. With a value score of 3, a reported intrinsic discount of 67% and a share price well below the average analyst target, the key question now is whether Duolingo is genuinely cheap or if the market already reflects its future growth. Price to earnings of 17.8x: Is it justified? On a P/E of 17.8x at the last close of US$148.58, Duolingo screens as expensive relative to its own estimated fair P/E and slightly expensive versus the wider US Consumer Services group, even though it sits below the peer average in its closer comparison set. P/E compares the share price to earnings per share. It is a quick way to see how much you are paying for each dollar of current earnings. For a profitable, software based education platform like Duolingo, this ratio often reflects how the market weighs its revenue growth, recent swing into profitability and expectations for future earnings. According to the SWS fair ratio work, Duolingo’s current P/E of 17.8x is higher than an estimated fair P/E of 9.6x, a level the market could potentially gravitate toward if earnings expectations cool. Yet it also sits below a 28.3x peer average where investors appear willing to pay more for similar companies. Against the broader US Consumer Services industry average of 16.9x, the stock looks only slightly richer, which suggests the bigger tension is between what the fair ratio implies and what investors have been prepared to pay so far. Explore the SWS fair ratio for Duolingo Result: Price-to-earnings of 17.8x (OVERVALUED) However, you also have to factor in risks such as slowing annual revenue growth of 18.45% and net income shrinking 18.04%, which could pressure the current P/E story. Find out about the key risks to this Duolingo narrative. Another view of value While the P/E of 17.8x looks high compared with a fair ratio of 9.6x, our DCF model suggests the opposite, indicating that Duolingo trades about 67% below an estimated fair value of US$456.95. One model signals caution, and the other indicates a potential opportunity. Which story do you trust more? Look into how the SWS DCF model arrives at its fair value. DUOL Discounted Cash Flow as at Jan 2026Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Duolingo for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 874 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.  Build Your Own Duolingo Narrative If you look at the data and reach a different conclusion, or simply prefer to test your own view, you can quickly build a custom thesis using Do it your way. A great starting point for your Duolingo research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision. Looking for more investment ideas? If Duolingo is on your radar, do not stop there. The right screener could surface opportunities you would otherwise miss and sharpen how you allocate capital.  Target potential mispricings by scanning these 874 undervalued stocks based on cash flows that may offer stronger cash flow support for their current share prices. Position yourself early in key themes by checking out these 23 AI penny stocks riding the expansion of artificial intelligence across multiple industries. Lock in income focused ideas by reviewing these 13 dividend stocks with yields > 3% that offer yields above 3% alongside stock market exposure.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    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\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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