Could Duolingo Stock’s Cash Flow Spark the Next Rally?
We think Duolingo (DUOL) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With DUOL
DUOL stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to daily active user growth decelerating to 30% in Q4 2025 from over 40% previously, and a strategic pivot prioritizing free user experience over immediate monetization. Increased investor apprehension about AI competition also fueled re-evaluations of future growth.
The stock may not reflect it yet, but here is what’s going well for the company: daily active users topped 50 million in 2025, aiming for 100 million by 2028. New Math, Music, and Chess courses, plus over $1 billion in 2025 bookings, drive momentum. Strong free cash flow, minimal debt, and a $400 million share repurchase underscore confidence, despite moderated 2026 revenue.
DUOL Has Strong Fundamentals
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- Cash Yield: Duolingo offers an impressive cash flow yield of 8.2%.
- Growing: Revenue growth of 38.7% over the last twelve months means that the cash pile is going to grow.
- Valuation Discount: DUOL stock is currently trading at 53% below its 3-month high, 82% below its 1-year high, and 82% below its 2-year high.
Below is a quick comparison of DUOL fundamentals with S&P medians.
| DUOL | S&P Median | |
|---|---|---|
| Sector | Consumer Discretionary | – |
| Industry | Education Services | – |
| Free Cash Flow Yield | 8.2% | 4.2% |
| Revenue Growth LTM | 38.7% | 6.6% |
| Operating Margin LTM | 13.1% | 18.7% |
| PS Ratio | 4.3 | 3.2 |
| PE Ratio | 10.7 | 24.3 |
| Discount vs 3-Month High | -52.6% | -9.9% |
| Discount vs 1-Year High | -82.4% | -13.1% |
| Discount vs 2-Year High | -82.4% | -14.9% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While DUOL stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. Duolingo took a hit of nearly 69% during the 2022 inflation shock. That’s a pretty sharp drop, especially considering all the tailwinds in the edtech space. It shows that even solid growth stories can suffer major sell-offs when market sentiment turns. Risk doesn’t disappear just because the fundamentals look good. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read DUOL Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
If you want to see more details, read Buy or Sell DUOL Stock.
Other Stocks Like DUOL
Not ready to act on DUOL? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
Portfolios Win When Stock Picks Fall Short
Stocks can jump or crash but long term success comes from staying invested. The right portfolio helps you ride gains and cushion single stock drops.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.