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When InvestingPro’s Fair Value models flagged Duolingo (NASDAQ:DUOL) as significantly overvalued on May 26, 2025, at $520.21, few could have predicted the dramatic correction that would follow. The language learning app maker’s stock has since declined by 42.74%, validating the model’s assessment and highlighting the importance of fundamental valuation analysis. Investors seeking similar opportunities can explore current overvalued stocks on Investing.com’s Most overvalued list.
Duolingo , known for its gamified approach to language learning, has experienced remarkable growth with its AI-powered educational platform. However, InvestingPro’s analysis identified several concerning factors, including an unsustainable valuation multiple and mounting competitive pressures. The company’s fundamentals, while solid with revenue of $811.21 million and EBITDA of $83.43 million at the time, didn’t justify the elevated stock price.
The subsequent market reaction proved the analysis correct. Despite posting improved numbers in Q2 2025, with revenue growing to $885.15 million and EBITDA reaching $99.65 million, Duolingo’s stock price has retreated to $297.86. This correction was accelerated by Apple’s announcement of a live translation feature and increasing competition in the AI-powered language learning space.
Recent developments have further supported the original thesis. While analysts maintain generally positive ratings, several firms, including Citizens JMP and DA Davidson, have lowered their price targets. Multiple insider sales by company executives, including the CTO, have added to market concerns about valuation levels.
InvestingPro’s Fair Value methodology combines multiple valuation approaches, including discounted cash flow analysis, peer comparisons, and historical trading ranges. This comprehensive approach helps investors identify potential mispricings before the market correction occurs. In Duolingo’s case, the model accurately predicted a significant downside potential of 40.66%, with the actual decline closely matching this forecast.
For investors looking to access similar market-beating insights, InvestingPro offers a suite of tools including Fair Value analysis, real-time alerts, and comprehensive fundamental data. Learn more about InvestingPro to discover potentially overvalued stocks before the market adjusts.