CEO Praise Amid Strong Past Financials With Future Concerns
"Yeah, I really like what the founder and CEO, Luis Bonan has done with this business. Um, there are some education companies out there that have been decimated by AI and LLMs. Uh, embraced it. Uh, using AI to quickly expand features and product offerings. He's forward thinking and I think it shows here."
Toby praises Duolingo's CEO for being forward thinking by leveraging AI to expand product offerings, differentiating the company from competitors hurt by technological disruptions. While he acknowledges strong historical financial performance, he remains cautious about future challenges amid ongoing market evolution.
Valuation Pessimism Amid AI Risks
"Yeah, I was pretty low. Lower than I usually am. I went 0 to 5% average annual return over the next five years and a safety score of three. And I'll tell you, my score would be worse except that we've already seen a 50% draw down in the stock. Dolingo, I mean, I just feel like it's almost in a lose-lose situation looking forward here because if artificial intelligence takes off, I think that alternatives to Dolingo are going to outperform it. But if artificial intelligence fails, Dolingo's kind of gone all in with the AI first strategy. And so I just don't really see the way out for him."
The speaker expresses a pessimistic outlook on Duolingo, predicting very low future returns (0-5% average annual) and highlighting a past 50% drawdown. He warns that if AI disrupts the learning space, competitors may outperform Duolingo, while even success in AI may leave the company in a risky, all-in position.
Duolingo Stock Commentary: Hold for Now with Future Buy Potential
"When it comes to Duolingo at the current price, I would be rating them a hold. The valuation isn't as intriguing right here, but what if I told you that over the course of the next month, the stock would trade at $240? Would you be interested in purchasing the stock? Then the answer for me would be absolutely. This clearly implies that while the current price doesn’t offer an attractive entry, a move to $240 would change the narrative completely."
The speaker provides a mixed view on Duolingo (ticker DOL), assigning it a 'hold' rating at current levels due to its pricing. However, he suggests that if the stock were to decline to $240 within the next month, it would become a compelling buy, highlighting a conditional opportunity based on valuation dynamics.
Duolingo Options Trade Call: Sell $240 Put
"What I'm doing is I'm going to be utilizing options by selling a cashsecured put. This is a trade that I alerted within my options edge community last week. Right now, you can sell the 1121, the November 21st $240 put and generate around $7.90 in income, which equates to $790 in income right away. However, by opening this trade, if the stock were in fact to fall, I could be on the hook to buy 100 shares per contract of Duolingo stock at a price of $240 per share, which again I would be happy to do. This would equate to an investment of $24,000 in Duolingo stock."
The speaker outlines an options play on Duolingo (ticker DOL), where he sells a cash-secured put with a $240 strike, potentially acquiring the stock if it drops to that level. This trade is designed to generate immediate income and serves as a conditional entry point, assuming the technical move to $240 materializes.