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Small-Cap Confidential
Undiscovered stocks that can make you rich

November 15, 2023

Sell Duolingo (DUOL)

I love Duolingo (DUOL) the company and think that, long term, the stock goes higher. However, I’m lukewarm on the stock at this level. Shares have surged as high as 223 this week and are trading in the 204 – 220 range today (it was at 166 just prior to the Q3 earnings report). They’re up 35 – 40% from our entry point. At this level, the stock is a very tall tree, trading well above most analyst price targets and at a premium valuation well above its long-term average (see chart of EV/forward Revenue below). On the one hand, valuation doesn’t always matter for a great growth story. On the other hand, it matters a lot when the market isn’t in rally mode. My concern is that a lot of things need to go right for DUOL to move materially higher from here in the short term, while only a few things need to go wrong for it to pull back 15% +- (roughly to the previous highs from October). Bottom line, we have a win right now so we’re going to take it. Sell DUOL to lock in a 35% to 40% gain. While it might be too cute to think we can buy it back later and lower, that’s my goal. SELL


Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.