One unassuming green owl is making its readers rich…
The Profit Column: A 660-Day Profit Streak
Everyone has investing regrets. I'll bet one of yours just flashed into your mind.
Here's mine: not buying Duolingo (DUOL).
Not just because the stock is up about 51% since it went public. Or because it's up over 100% from the lows. But because I've known for years just how powerfully habit-forming its product is.
I've been a dedicated user of Duolingo's flagship language-learning app since I started brushing up on Spanish to impress my now-fiancé back in 2020. And when I say dedicated, I mean every… single… day.
I have a 1,211-day streak in Duolingo. It's my evening ritual right before the lights go out. I even pony up for its paid subscription every year.
And I'm not the only one. Duolingo has millions of users (and counting) who are happy to log on and spend five minutes learning a language each day.
In retrospect, DUOL was obviously a great buy. But to Andy and Landon Swan, brothers and founders of LikeFolio — and the brains behind Derby City Insights — it was obvious back when the stock price was half its current level.
Because they go beyond the standard screen of fundamental health and positive price action when they research stocks. They tap into arguably the most important factor of any publicly traded company — the consumers driving sales.
This week, we're doing The Profit Column a bit different and — with permission — talking about an open position that is up more than 127% in Andy and Landon's MegaTrends portfolio.
I'll show you the tools they used to find DUOL, and what they're planning for 2024.
The Profit Column: A 660-Day Profit Streak with Andy Swan
Michael Salvatore, Editor, TradeSmith Daily (MS): Hey Andy, thanks so much for joining me again.
We've been talking a lot lately, huh?
Andy Swan, Founder, LikeFolio (AS): We sure have, Michael. And it's no big surprise to me… We've been posting quite a few profits for our subscribers.
It's been a killer season for Earnings Season Pass, for one. Last week we scored an 86% win on Dollar Tree (DLTR) in just 48 hours on our recommended trade of the week.
In LikeFolio Investor, one of our recommended companies generated $4.2 million in sales per minute on Black Friday. That one's up 70% since we recommended it and I think there's much more to come.
But you're curious about another one — right? A MegaTrends stock?
MS: Yes, I definitely want to talk about how you picked up Duolingo.
Just like we discussed recently with a few of the Magnificent 7 stocks, you bought this stock near its lows back on Feb. 11, 2022. I guess in Duolingo terms that'd be a 660-day "streak."
Buying a stock like Duolingo, something between a consumer discretionary tech stock and an education company, probably didn't sound like the best move to most people panicking about Fed rate hikes and future recessions that never came to be.
But you saw something in Duolingo that most others didn't. Can you share exactly what that was?
AS: Yeah, so anyone familiar with what Landon and I created with LikeFolio knows that we don't just look at the traditional Wall Street metrics. We developed a system using numbers most investors don't ever consider. Even those who rake in millions in fees for managing money.
With Duolingo, and really with any company, you have to remember what really drives revenue. It's happy customers.
With a company like Duolingo in particular, we can see if they're growing the number of happy customers using and paying for their app.
Take this chart. We shared this in the initial recommendation for Duolingo back in February. (Subscribers can access the report here.)
What you're seeing there is the number of consumers posting on social media that they're willing to pay for a premium Duolingo subscription. We saw a big spike in mentions in the first quarter of last year, at the exact same time the stock price was falling. I believe it went from about $150 down below $100. And that happened in the span of two quarters.
MS: This metric is called Purchase Intent, right? And it's one of your proprietary signals?
AS: Yes exactly. It's unique to LikeFolio, which means most investors were simply not seeing what we were seeing. They saw just another tech IPO launching into what would become a tough market for tech stocks. And they weren't wrong about that — Duolingo did have a choppy 2022.
But we also saw strong evidence of potential new revenues right before our eyes. The stock price was falling, but the number of folks talking about joining Duolingo was rising — by something like 32% year-over-year.
For us, that's an excellent setup for a future turnaround.
I'll show you another one:
This is another great example of what sets us apart. Our data engine also tracks trends.
New Year's Day is one of those periods when folks consistently set ambitious goals for the year ahead. A popular goal is learning a new language. And like clockwork, every winter, we see people googling around for the best ways to learn a new language. In this case, "duolingo" was registering among those top search terms. It confirmed for us that people were looking to Duolingo directly.
MS: So your position in Duolingo has seen a big gain from when you bought it in 2022, but a big chunk of those gains hit in just the past month. Can you tell us why?
AS: Duolingo came out with an earnings report that really lit a fire under the stock. It beat expectations on virtually every level: paid subscribers up 60%, monthly active users up 47%, daily active users up 63%, a revenue boost of 43%… you get the idea.
The beauty is that we saw a report like this coming. All the folks buying up Duolingo subscriptions back when we first recommended the stock were up for renewal over the past few months, and Duolingo's app is so addictive, a lot of people clearly kept with it.
But we're not looking to take profits on Duolingo here. Both Landon and I believe the rewards we're seeing for our patience today are just the beginning. We think this stock could easily hit $300 in the future.
If you're not in Duolingo yet, though, we'd recommend sticking it on your watchlist until it trades down closer to $200.
MS: That's great guidance Andy, I'm sure our subscribers appreciate it. Thanks for chatting today. Mind telling our readers what's coming up next for MegaTrends?
AS: Well, we just released our November 2023 report, where we feature our "Top Disruptors of 2024," small-cap stocks we believe have strong growth ahead in the new year.
We're also looking at the weight-loss space — you know, Wegovy and those drugs that are absolutely exploding in popularity? We've got our eye on a tiny player there that's set to take the market by surprise in 2024.
MS: I'll be sure to let TradeSmith Daily readers know how to get access there. Thanks for chatting today, Andy.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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