Why AppLovin (APP) Might be Well Poised for a Surge

Investors might want to bet on AppLovin (APP), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this mobile app technology company, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For AppLovin, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $2.01 per share, which is a change of +125.84% from the year-ago reported number.

Over the last 30 days, the Zacks Consensus Estimate for AppLovin has increased 30.02% because six estimates have moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $8.39 per share, representing a year-over-year change of +85.21%.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, seven estimates have moved up for AppLovin versus no negative revisions. This has pushed the consensus estimate 25.61% higher.

Favorable Zacks Rank

Thanks to promising estimate revisions, AppLovin currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on AppLovin because of its solid estimate revisions, as evident from the stock's 47.4% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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This article originally published on Zacks Investment Research (zacks.com).

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