AppLovin (NASDAQ:APP) stock declined following critical reports from two short sellers, Fuzzy Panda and Culper Research, which questioned the legitimacy of the company’s AI-powered advertising search engine, AXON. [1] This technology has been a key driver behind AppLovin’s strong profit performance in recent quarters. For more on the company’s latest financial results, refer to our post-earnings analysis – Can AppLovin Stock Keep Soaring? 850% Growth And Beyond.
After its recent decline, APP stock looks attractive but volatile – making it a tricky pick to buy at its current price of around $330. We believe there is minimal cause for concern with APP stock, which makes it attractive but highly sensitive to adverse events as its current valuation is extremely high.
We arrive at our conclusion by comparing the current valuation of APP stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of AppLovin along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very strong operating performance and financial condition, as detailed below.
Separately, check out – Will XRP Price Rebound From Its 30% Fall?
How does AppLovin’s valuation look vs. the S&P 500?
Going by what you pay per dollar of sales or profit, APP stock looks very expensive compared to the broader market.
• AppLovin has a price-to-sales (P/S) ratio of 29.0 vs. a figure of 3.1 for the S&P 500
• Additionally, the company’s price-to-operating income (P/EBIT) ratio is 81.1 compared to 24.4 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 71.5 vs. the benchmark’s 24.4
How have AppLovin’s revenues grown over recent years?
AppLovin’s Revenues have grown considerably over recent years.
• AppLovin has seen its top line grow at an average rate of 36.6% over the last 3 years (vs. 9.8% for S&P 500)
• Its revenues have grown 41.5% from $3.0 Bil to $4.3 Bil in the last 12 months (vs. change of 5.6% for S&P 500)
• Also, its quarterly revenues grew 38.6% to $1.2 Bil in the most recent quarter from $864 Mil a year ago (vs. 7.2% change for S&P 500)
How profitable is AppLovin?
AppLovin’s profit margins are considerably higher than most companies in the Trefis coverage universe.
• AppLovin’s Operating Income over the last four quarters was $1.5 Bil, which represents a high Operating Margin of 35.8% (vs. 12.6% for S&P 500)
• AppLovin’s Operating Cash Flow (OCF) over this period was $1.7 Bil, pointing to a considerably high OCF-to-Sales Ratio of 40.6% (vs. 14.4% for S&P 500)
Does AppLovin look financially stable?
AppLovin’s balance sheet looks strong.
• AppLovin’s Debt figure was $3.5 Bil at the end of the most recent quarter, while its market capitalization is $112 Bil (as of 2/26/2025). This implies a very strong Debt-to-Equity Ratio of 2.8% (vs. 19.7% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $568 Mil of the $5.4 Bil in Total Assets for AppLovin. This yields a moderate Cash-to-Assets Ratio of 10.4% (vs. 14.1% for S&P 500)
How resilient is APP stock during a downturn?
APP stock has fared much worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock ( 2022)
• APP stock fell 90.1% from a high of $94.38 on 3 January 2022 to $9.30 on 27 December 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 11 September 2024
• Since then, the stock has increased to a high of $510.13 on 17 February 2025 and currently trades at around $330.
Putting all the pieces together: What it means for APP stock
In summary, AppLovin’s performance across the parameters detailed above are as follows:
• Growth: Extremely Strong
• Profitability: Extremely Strong
• Financial Stability: Very Strong
• Downturn Resilience: Extremely Weak
• Overall: Strong
Hence, despite its extremely high valuation, the stock appears attractive but volatile, which supports our conclusion that APP is a tricky stock to buy.
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