AppLovin Sees Short-term Upside Amid Legal Challenges and Valuation Concerns

Technical Analysis

AppLovin Corporation (NASDAQ: APP) closed on March 7, 2025, at $270.48, experiencing a significant daily hike of 4.18%. The current trading price remains below its 50-day moving average of $361.10 and well above its 200-day moving average of $201.59. This positioning indicates a short-term bearish momentum and potential mid-to-long-term recovery. The RSI of 9 suggests that the stock is heavily oversold, potentially priming it for a technical rebound. However, with significant resistance at $320.49, the stock may face challenges in sustaining upward momentum unless it breaks through this level. A MACD of 11.03 aligns with the recent positive momentum, though it may imply caution amidst volatility, as indicated by an ATR of 13.60.

Fundamental Analysis

AppLovin Corporation's PE ratio at 59.84 appears high, suggesting it is overvalued when compared to historical market averages. The current market cap is $91.95 billion, which reflects investor confidence in its market position despite recent setbacks. A DCF evaluation of $86.34 indicates potential overvaluation in the market, aligning with the wide disparity between the discounted cash flow valuation and the current trading price. The pending class action lawsuits may inject further volatility and investor apprehension until additional details emerge or resolutions are reached.

Near-term Predictions

Given the oversold RSI and the recent positive MACD figures, there may be a technical rebound on the next trading day (March 10, 2025). Nevertheless, the ongoing legal challenges may blunt recovery efforts. For the upcoming week, the stock could experience additional volatility, oscillating between the support level of $259.63 and the resistance level of $320.49, influenced heavily by the sentiment and developments concerning the legal proceedings.

Intrinsic Value and Long-term Investment Potential

Despite recent positive price movements, the DCF valuation places intrinsic value at approximately $86.34, suggesting that the stock may be significantly overvalued relative to its fundamentals. The immediate challenges stemming from class action lawsuits may impact investor confidence and the stock’s future performance. However, the company's operations in enhancing digital marketing and monetization platforms establish a strong long-term growth potential, conditional upon resolving current legal uncertainties.

Overall Evaluation: Hold

While AppLovin Corporation presents substantial volatility and potential legal challenges in the short term, the long-term growth outlook, backed by its core software platform, could offer substantial upside. A 'Hold' status is warranted for those currently invested, pending further developments on the legal front, while reassessment may be required post-earnings announcement and legal clarifications. Such an approach will allow investors to gauge a clearer trajectory for the company's valuation and market position going forward.