What happened

Shares of Duolingo (DUOL -1.21%) rose by 12.7% in September 2023, according to data from S&P Global Market Intelligence. The language-learning specialist's stock trended higher through most of the month with some turbulence near the end. With the whole 30-day period in the books, a bullish analyst report helped Duolingo investors shrug off another wave of economic pressure.

So what

Duolingo's general upward trend is nothing new. The stock has been rising throughout 2023, making up lost ground from the inflation crisis of 2022, which turned the entire stock market risk-averse. All told, Duolingo investors have pocketed a 130% gain year to date and a 54% increase measured from the end of 2021 to today. Many investors are looking past the supposed market risk of higher interest on new debt in this case. After all, Duolingo hasn't held a single penny of long-term debt on its balance sheet since entering the public stock market in 2021.

So when Duolingo's share price started to sag amid renewed economic worries in the middle of September, the stock was set up for a quick rebound. The bulls found a reason to drive Duolingo's stock price higher on Sept. 28, as analyst firm UBS issued a glowing analysis of the company and stock.

UBS analyst Chris Kuntarich called Duolingo a "best-in-class brand," barely scratching the surface of a massive long-term target market. The firm likes Duolingo's rapid subscriber growth, its room for improvement in monetization efforts, and the potential to expand beyond language-learning courses.

The stock rose 11% over the next two days, capping September on a high note.

Now what

Duolingo isn't a very profitable business so far. You see, management pours every penny of excess income into growth-boosting budget lines such as marketing and product research. As a result, the company shows skyrocketing growth in sales and users but is unprofitable in terms of after-tax net income.

At the same time, more than one-third of the operating expenses -- including the aforementioned research and marketing lines -- are paid in the form of stock-based compensation. Hence, Duolingo more than tripled its free cash flows in the second quarter. That type of compensation is a noncash way of paying the crew, who are then free to sell the stock on the open market.

This approach keeps Duolingo's employees happy (as long as stock prices are rising, anyway) while the company is pocketing generous cash profits and stiff-arming Uncle Sam's attempts to collect income taxes.

And when I saw the UBS report's bullish analysis, I recognized most of the arguments from my own Duolingo analysis. I agree with this firm's growth projections and long-term expansion opportunities. This little company is going places over the long haul, and I can't wait to see what the green owl will do next.