Duolingo's reported earnings are artificially inflated by a one-time $222.7 million deferred tax asset valuation allowance release, making its standard P/E ratio misleadingly low. By normalizing earnings (removing the one-time benefit), the author calculates a "true" P/E of ~28x at a price of $90. This suggests the stock is significantly cheaper than it appeared at its peak and is now at a more reasonable valuation for a growth company. The post-earnings crash has brought Duolingo's valuation to an attractive level (28x normalized P/E), implying a buying opportunity for a value-oriented investor. The market may continue to punish the stock for other reasons (e.g., slowing growth, competitive pressure, poor guidance) regardless of the normalized valuation. The author's normalization method might be too simplistic.
DUOL
Feb 26, 22:47
Key Points
['Duolingo had a one-time $222.7M tax benefit.', 'Reported P/E is misleadingly low due to this benefit.', 'Normalized P/E at $90 is ~28x.', 'The stock is much cheaper than its peak valuation of 105x.', 'The recent price drop presents a potential value opportunity']
February 26, 2026 at 22:47