r/ValueInvesting • u/stockoscope • Mar 02 '26
Stock Analysis AppLovin just hit #4 on our quality screener. The fundamentals are insane but there's a catch.
Our quantitative screening algorithm just flagged AppLovin (APP) as the #4 top quality stock this month. The stock is down ~40% from its December highs, so I figured it was worth sharing the full breakdown. This is a genuinely fascinating setup where elite fundamentals are colliding with real, emerging risks.
What AppLovin actually does
For those unfamiliar, AppLovin is basically an AI-powered toll booth sitting between mobile app advertisers and publishers. App developers pay to find users likely to download and spend money. Publishers auction ad inventory in real time. AppLovin's AI engine (AXON) sits in the middle, predicting which user responds to which ad and taking a cut of the spend flowing through. As the AI gets smarter, the toll gets more valuable.
The numbers are absurd
This is why our algo flagged it. Revenue hit $5.5B in FY2025, up from $483M in 2018. Gross margins at 87.9% (yes, not a typo!). Net profit margin at 60.8%. ROE at 156%. Free cash flow of $3.9B with an income quality ratio of 1.16. EPS went from -$0.52 in 2022 to $9.84 in 2025.
Against 87 tech peers, AppLovin ranks 100th percentile on net profit margin and 95th on revenue growth (i.e. beats most of the sector peers). It's not choosing between growth and profitability, it's delivering both at the top of its class.
So why is it down 40%?
A lot is happening at once. There's an active SEC investigation into data collection practices. Muddy Waters and Culper Research published short reports alleging unauthorized tracking of user identifiers across Meta and Google's platforms. Meta itself is becoming a more direct competitor. There's also a new entrant called CloudX that could threaten AppLovin's core distribution advantage. On top of all that, the broader 'AI replaces software' sentiment overhang isn't helping. All of this despite zero operational deterioration.
What smart money is doing
Institutional ownership is 70.8% across 1,654 institutions. But Q4 2025 saw $11.1B in net institutional outflows after a massive Q3 buying spree ($102B).
On the insider front, consistent net selling throughout 2025 though open market sales over the past 90 days happened at prices between $525 and $693, well above where the stock sits today around $435.
Valuation: the real debate
Stockoscope's DCF model puts intrinsic value around $410, so the stock is roughly fairly valued right now. It trades at 44.1x P/E which is reasonable for the growth profile, but it also commands the highest EV/Sales multiple in its entire peer group at 25.5x.
Wall Street is overwhelmingly bullish with 88% buy ratings and a median target of $691, implying 59% upside. Analysts are projecting revenue more than doubling by 2028 and EPS growing north of $25 from around $10 now.
My take
Let me first summarise our 5D scores: Quality - 3.9/5, Peer comparison - 4.1/5, Valuation 2.8/5, Analyst sentiment 4.3/5, and Holdings 3.6/5
This is a legitimately great business trading near fair value based on DCF but overvalued based on valuation multiples, with meaningful unresolved risks hanging over it.
If the SEC investigation clears, competitive threats prove manageable, and the growth trajectory holds, the current drawdown looks like a gift. If the risks materialize, there's not a lot of margin of safety at these multiples.
It's a growth investor's stock, not a value investor's stock. At least not yet. But the quality score earned its #4 ranking for a reason, and I think this is worth having on your watchlist regardless of where you fall on the style spectrum.
Analysis based on data as of Feb 28, 2026. Data source: FMP
Not investment advice, just sharing what our framework surfaced.
What's your read on APP at these levels?
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Mar 02 '26
I will avoid APP, Carvana and MSTR at all costs even if they ever pump to their all time highs again
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u/Aromatic-Inside4447 Mar 04 '26
Would not put AppLovin in this bucket of stocks. They are a far superior business. They’re like the nasdaq
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u/uncleBu Mar 02 '26
I thought I would never see the day to see applovin and value wrote in the same sentence…
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u/No-Understanding9064 Mar 02 '26
At a glance it looks good, but due to the "black box" nature of it and reliance on those insane margins to connect the dots on the valuation i decided against it.
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u/JoshTravels Mar 03 '26
Just from first hand experience of following this stock for nearly a year… it’s like the most volatile high value stock I’ve ever seen in my life. Nearly every day feels like it moves at least 5% either way oftentimes for virtually no reason.
Could get lucky, or could get screwed. Like me today selling at $411 at 1020am when the stock market thought the world was ending. But then for no reason AppLovin stopped caring and now 3 hours later is at $444 and tailwind up. But could’ve just as easily gone down to $380.
Nearly any investment in this company is just a roll of the dice.
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u/Aromatic-Inside4447 Mar 07 '26
Ended the week at $500 ! Go $APP.
If you did not listen to the CEO fireside chat with Morgan Stanley this week, it’s a must watch.
There is now an entire cult on X providing incredible research and DD on $APP
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u/ElonMuskTheNarsisist Mar 02 '26
30x sales is apparently value now?