AppLovin Shares Plummet 18% Amid Legal Woes and Oversold Signals; Caution Urged for Investors

Technical Analysis

AppLovin Corporation (NASDAQ: APP) experienced a significant drop in its stock price, closing at $259.63 on March 6, 2025, with a sharp decline of 18.36% from the previous day. The trading volume surged to 16.12 million, substantially higher than the average of 6.42 million, indicating heightened selling pressure. The Relative Strength Index (RSI14) is at 17, suggesting that the stock is heavily oversold and could be poised for a technical rebound in the short term. The stock is trading well below its 50-day moving average of $363.69, reflecting a bearish trend, although it's still above the 200-day moving average of $199.77, potentially offering a long-term support level. The resistance level stands at $318, while no clear support level is visible due to the recent swift decline.

Fundamental Analysis

Despite the precipitous fall in stock price, AppLovin's fundamentals showcase a mixed picture. The Price-to-Earnings (P/E) ratio of 57.44 is relatively high compared to industry averages, indicating that the stock may be overvalued relative to earnings. The company has an EPS (TTM) of $4.52, but with a discounted cash flow (DCF) of $86.34, the intrinsic value suggests an overvaluation in its current market price.

The company faces legal challenges as multiple class action lawsuits have been initiated against it. These legal proceedings could pose additional financial risks and impact investor sentiment negatively. The upcoming earnings announcement on May 14, 2025, will be crucial in showcasing the company's financial health and addressing these legal concerns.

Short-Term Prediction

Given the severe decline on March 6, a technical rebound is possible in the next trading day, especially given the stock's oversold condition. However, due to the ongoing legal complications and investors' potential risk aversion, any upward movement might be restrained.

For the upcoming week, volatility is expected to persist, driven by the unfolding news concerning the lawsuits and broader market conditions. A downward bias may remain unless positive developments emerge.

Long-Term Investment Potential

AppLovin's intrinsic value and high P/E ratio suggest that the stock is trading at a premium. The long-term potential depends significantly on how the company navigates its current legal hurdles and maintains its growth trajectory. Given the class action lawsuits and currently unfavorable market sentiment, long-term investors might exercise caution.

Overall Evaluation

In conclusion, AppLovin Corporation is currently facing substantial headwinds. The legal issues create additional uncertainty, deterring any bullish sentiment. Given the technical oversold conditions and the possibility of a short-term bounce, a 'Hold' might be prudent for existing investors awaiting further clarity on legal matters and company performance. New entrants or risk-averse investors might consider stepping aside until more favorable conditions arise.