AppLovin's stock has experienced a significant increase of almost 60% since July, primarily driven by strong revenue and earnings per share growth, coupled with its recent inclusion in the S&P 500. Despite these positive indicators and a history of outperforming earnings expectations, the company is facing challenges such as slowing revenue growth and a high valuation. The Relative Strength Index (RSI) suggests that the stock is currently overbought, a condition previously observed during market peaks, which could signal an impending correction.
AppLovin (NASDAQ:APP) has seen its share price climb substantially since July, marking a remarkable 60% gain. This upward trajectory can be attributed to several factors, including impressive revenue expansion and a notable increase in earnings per share. A key catalyst for this surge was the company's inclusion in the S&P 500 index on September 5th, a development that typically brings increased visibility and institutional investment.
The company's strong financial performance has been consistent, with AppLovin regularly surpassing analyst expectations in its earnings reports. This indicates a robust underlying business model and effective management strategies. However, despite these strengths, some concerns are emerging regarding the sustainability of this growth. Analysts note a deceleration in revenue growth, which could impact future performance. Furthermore, the stock's valuation, particularly its forward Price-to-Earnings (P/E) ratio, remains considerably higher when compared to industry peers like Meta Platforms (META) and Alphabet (GOOGL), suggesting that it might be currently overvalued.
A critical technical indicator, the Relative Strength Index (RSI), has reached levels that historically precede a market pullback. The RSI, which measures the speed and change of price movements, has not been this high since the peaks observed in mid-February, when it briefly touched 81. Such elevated RSI readings often signal that an asset is overbought and due for a price correction.
Investors should carefully consider these factors. While AppLovin's fundamentals remain strong, the current valuation and the technical signals from the RSI suggest caution. The combination of slowing revenue growth and a high P/E ratio, along with an overbought RSI, points to an increased risk of a significant downward adjustment in the stock price. Therefore, a more conservative approach might be warranted.