Tuesday's IBD 50 Stocks To Watch pick is Duolingo, which rose Monday despite the overall stock market weakness. That outperformance resulted in the stock's relative strength line hitting an all-time high and made Duolingo stock one of the best names to buy and watch right now.
Duolingo offers instruction in more than 40 different languages on its freemium service. Popular languages to learn through Duolingo include English, Spanish, French and Japanese. Its free service is supported by advertising while its paid subscription service is ad-free.
In mid-December, Duolingo stock received a price-target hike at Needham. Analyst Ryan MacDonald reiterated his buy rating on Duolingo stock and upped his price target to 385 from 370 after visiting with the company.
Duolingo is entering its next phase of growth, which includes the use of generative artificial intelligence chatbots to teach languages, MacDonald said in a note to clients.
"While GenAI has thus far been viewed as a disruptor to the education ecosystem, Duolingo is starting to harness the technology for a monetizable use case that we believe will be a powerful tool in expanding their reach to a large set of English language learners that have historically shown low free-to-paid conversion," he said.
Double-Digit Revenue, Triple-Digit Earnings Gains
Over the last eight quarters, Duolingo revenue growth has ranged from 40% to 45%. The company posted $192.6 million in sales in the third quarter, marking a 40% year-over-year gain.
Bottom-line growth also remains strong and steady. Over the last six quarters, Duolingo generated triple-digit earnings growth. In the third quarter, Duolingo showed 600% growth over the prior-year quarter, to 49 cents per share.
Analysts expect an earnings gain of 85% in the fourth quarter, leading to a 477% rise in earnings for the full year. Duolingo is scheduled to report earnings Feb. 27.
For full year 2025, Wall Street sees a 44% rise in earnings to $2.90 cents a share, per IBD MarketSurge.
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Duolingo Stock Eyes Buy Point
Duolingo stock extended a win streak to five sessions Monday, closing 4% away from a cup base's 378.48 buy point. The stock added 1.4% Tuesday morning.
The relative strength line hit a new high Monday — per IBD MarketSurge chart analysis — triggering the RS Line Blue Dot signal.
When a stock's RS line hits a new high while the stock is forming a base or breaking out, then the Blue Dot appears on the MarketSurge weekly or daily chart. Remember, the RS line measures a stock's price performance vs. the S&P 500 and is the blue line on every IBD chart.
If the market is trending down, good stocks will outperform just by treading water. When the market rebounds, the stocks with best relative strength should bounce back even stronger than the market.
Another positive signal is that the current base formation is an early second-stage base. Early-stage bases are more likely to net bigger gains than later-stage formations.
The IBD Stock Checkup shows that Duolingo stock boasts a best-possible 99 IBD Composite Rating, another bullish attribute. That strong Composite Rating places the name among the best stocks to buy and watch in today's market.
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Other Stocks To Keep An Eye On
Three recent IBD 50 Growth Stocks To Watch picks are among the best stocks to buy and watch.
| Company | Symbol | Buy point | Type of base |
|---|---|---|---|
| HealthEquity | 88.26 | Cup base | |
| Globus Medical | 87.22 | Flat base | |
| ExlService | 47.37 | Flat base |
Source: IBD Data as of Feb. 4
Follow Scott Lehtonen on X at @IBD_SLehtonen for more on the best stocks to buy and watch and the Dow Jones Industrial Average.
