Key Points
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AppLovin got a bullish note from Citi, which said it was headed for the top of its second-quarter guidance.
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The stock has pulled back substantially from its peak, but it’s still expensive.
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AppLovin could move by double digits following its second-quarter report on Aug. 6.
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10 stocks we like better than AppLovin ›
Shares of AppLovin (NASDAQ: APP) were among the winners today after the fast-growing ad tech company received an endorsement from Citigroup, which called it a top pick.
That news was enough to send the stock up 6.5% as of 3:05 p.m. ET.
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AppLovin gets a boost
AppLovin has been volatile. The stock, which was a breakout winner last year, is now up against high expectations in a chaotic advertising and economic environment.
However, Citi’s note today clearly gave the stock a boost. The bank reaffirmed AppLovin as a top pick heading into its second-quarter results, saying that it expects the company’s results to be toward the high end of its guidance range. Citi sees more positives for the stock in the second half of the year.
It also maintained a buy rating on the stock with a price target of $600, implying nearly 70% upside in the stock.
Is AppLovin a buy?
Even as AppLovin has pulled back from its peak, the stock remains pricey at a price-to-sales ratio of 22, but it has the growth to back it up.
In the first quarter, AppLovin stock reported 71% growth in its core advertising business to $1.15 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 92% to $943.3 million.
The company announced the sale of its mobile app game business in May, allowing it to fully focus on its ad tech platform. Given the high growth, expanding margins, and plans to get into a new vertical like connected TV, the stock could still move considerably higher.
Keep your eye on the Aug. 6 report, as the stock could swing significantly in the wake of the update.
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Citigroup is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in AppLovin. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.
