Duolingo (NASDAQ:DUOL): A High-Growth Stock with Strong Fundamentals and Breakout Potential

Investors looking for high-growth opportunities often search for stocks that combine strong fundamental growth with positive technical patterns. One way to find these stocks is by screening for companies with steady earnings and revenue growth, good financial health, and a technical setup that hints at possible upward movement. This method focuses on stocks that not only have the business strength to maintain growth but also show signs of near-term price gains based on market trends.

Duolingo Inc (NASDAQ:DUOL) stands out as a stock that meets these conditions, showing both fundamental growth potential and a technical pattern that may lead to a breakout.

Fundamental Strength: A Growing Business

Duolingo’s fundamental profile matches the traits of a strong growth stock:

• High Revenue and Earnings Growth: Over the past year, Duolingo’s revenue increased by 40.84%, while its earnings per share (EPS) rose 72.86%. The company’s long-term revenue growth averages 60.24% per year, far exceeding many peers in the Diversified Consumer Services sector.
• Strong Gross Margins: With a gross margin of 72.25%, Duolingo does better than 88.89% of its industry competitors, showing efficient cost control and pricing strength.
• Solid Financial Position: The company has no debt and maintains good liquidity, with a current ratio of 2.68, well above industry standards.
• Expected Future Growth: Analysts forecast continued EPS growth at 52.44% per year, supporting the company’s growth path.

While Duolingo’s valuation multiples (P/E of 141.99) seem high, this is common for high-growth companies where investors accept higher prices for future earnings potential. The fundamental analysis report gives Duolingo a 6/10 overall rating, with strong scores in Growth (8/10) and Health (8/10).

Technical Setup: Consolidation Before Possible Breakout

From a technical view, Duolingo shows signs of consolidation after a long uptrend, which may lead to a breakout:

• Support Levels: The stock has key support zones at $333.70-$338.98, formed by multiple trendlines across different timeframes. Holding above this area could suggest accumulation before another upward move.
• Resistance Levels: Immediate resistance is near $352.37-$356.70, where the 20-day moving average and past price action meet. A clear break above this level could spark further gains.
• Recent Weakness vs. Long-Term Strength: While the stock has dropped 12% over the past month, its 83.64% relative strength over the past year shows it remains a leader in its sector.

The technical analysis report gives a 4/10 rating, noting short- and long-term downtrends but also a 7/10 setup rating, suggesting a possible reversal if support holds.

Why These Factors Are Important

The mix of strong fundamentals and a positive technical pattern is key for growth investors:

• Fundamental Growth ensures the company can support higher valuations over time.
• Technical Strength helps pinpoint better entry points, lowering risk by confirming market sentiment aligns with the fundamental story.

Duolingo fits this approach—its rising revenue and earnings provide the base, while its technical setup hints the stock may be ready for another upward move.

Finding More Opportunities

For investors interested in similar high-growth stocks with good technical setups, more options can be found using the Strong Growth Stocks with Good Technical Setup Ratings screen.

Disclaimer: This article is not investment advice. Investors should do their own research or consult a financial advisor before making decisions.