One stock that has been shuffled to the side this year and largely overlooked is AppLovin (APP 2.61%). The stock price is down more than 20% on the year. However, a few Wall Street analysts see significant upside potential in it.
Among the analysts bullish on AppLovin stock is Evercore's Robert Coolbrith, who has an "outperform" rating and a $750 price target. Coolbrith believes the stock's valuation is compelling and sees early momentum in its newer e-commerce vertical. Morgan Stanley analysts are also bullish, with a $720 target, saying late last month that higher conversion rates could drive meaningful revenue and profits.
Citigroup, meanwhile, has a $710 price target on AppLovin and recently added the stock to its 90-day catalyst watch list, citing the growth potential in its increased marketing and in its platform becoming generally available later this month.
Image source: The Motley Fool.
Why the stock looks like a buy
AppLovin has been one of the biggest beneficiaries of using artificial intelligence (AI) to drive growth in its core business. Since releasing its AI-powered Axon 2 engine in 2023, the adtech company has seen not only tremendous revenue growth but also expanding margins.
This continued last quarter, when the company grew its revenue by 59% to $1.84 billion. Meanwhile, its gross margins rose 220 basis points to 89%, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins climbed by 400 basis points.
Despite the company's robust growth over the past few years, it still has catalysts ahead. After operating a closed, managed service ecosystem, generally available only to large gaming app developers, it is opening a self-service platform for the first time this month. That should help bring in smaller gaming app developers and those from other industry verticals, such as e-commerce, which it has recently been courting.
NASDAQ: APP
Key Data Points
On top of that, AppLovin has said it is seeing tailwinds in the gaming industry as more large gaming developers look to introduce hybrid monetization models that include ads. Historically, some of the very top games, especially role-playing (RPG) and strategy games, have relied solely on in-game purchases, not wanting to advertise competing games. However, that has started to change, which could be a tailwind for AppLovin.
Even with its strong growth and opportunities, the stock remains attractively valued. It trades at a forward price-to-earnings (P/E) ratio of 31 based on 2026 analyst estimates, with a price/earnings-to-growth (PEG) ratio of under 0.5 times. A PEG ratio less than 1 is typically considered undervalued. Taken as a whole, the stock looks like a solid buy with some nice upside potential.
