1 Growth Stock Down 20% to Buy Right Now

AppLovin (APP) is highlighted as a compelling growth stock opportunity, despite a nearly 23% decline from its highs, driven by the success of its AI-powered Axon 2 adtech platform. The company reported a 68% year-over-year Q3 revenue increase to $1.4 billion, with adtech adjusted EBITDA surging from $363 million in Q3 2023 to nearly $1.2 billion last quarter, alongside a 93% rise in operating cash flow. Strategic initiatives, including a new self-serve ad manager, international expansion, and a push into the e-commerce market with AI-driven ad generation tools, are expected to fuel continued growth, making its current valuation, with a forward P/E of 40.5x and PEG of 1.1x, appear attractive.

Analysis

AppLovin (APP) presents a compelling investment case despite its stock being down nearly 23% from recent highs, driven by the exceptional performance of its AI-powered Axon 2 adtech platform. The company's Q3 revenue soared 68% year-over-year to $1.4 billion, with adtech revenue experiencing a nearly threefold increase in two years since Axon 2's Q2 2023 introduction.

This growth is not merely top-line; profitability has surged, with adtech adjusted EBITDA rising from $363 million in Q3 2023 to nearly $1.2 billion last quarter. Operating cash flow also climbed 93% year-over-year to $836 million, indicating robust free cash flow generation due to minimal capital expenditures.

Future growth is anticipated from several strategic initiatives, including the recently launched self-serve ad manager, which has seen 50% weekly growth since October, and international expansion into key gaming markets. Furthermore, AppLovin is actively pursuing diversification beyond gaming into verticals like e-commerce, leveraging Axon 2's predictive capabilities and developing AI-driven ad-generation tools.

Despite its strong growth trajectory, APP trades at a forward P/E of just over 40.5 times and a PEG ratio of 1.1 times based on next year's analyst estimates. This valuation is considered attractive given the continued strength in its core business and the significant upside potential from new market expansions, positioning it as a well-positioned growth stock.

Key Decisions for Investors

• Consider initiating or adding to positions in AppLovin (APP) given its strong fundamental performance and attractive valuation after a recent price dip.
• Monitor the progress and adoption rates of the new self-serve ad manager and the success of its expansion into non-gaming verticals, particularly e-commerce.
• Evaluate the sustainability of its high growth rates and cash flow generation, especially as it scales its AI-driven solutions into new markets and customer segments.