1 Growth Stock Down 20% to Buy Right Now

Growth stocks have been leading the market higher in 2025, but not every growth stock is trading near an all-time high, including some of the high-flying artificial intelligence (AI) stocks. One growth stock that is down nearly 23% and looks like a stock to buy now is AppLovin (NASDAQ: APP).

Let's take a closer look at the company and why now could be a good time to scoop up some shares.

A top AI company

Ignore its silly name. AppLovin has been one of the biggest AI-winning stocks over the past few years, and it could just be getting started. For those unfamiliar with the company, it is an adtech company best known for helping mobile gaming developers attract users and better monetize their apps. It also previously owned a portfolio of its own gaming apps, which it sold earlier this year.

Image source: Getty Images.

The company saw its growth start to surge with the introduction of its AI-powered Axon 2 adtech platform in the second quarter of 2023. Axon 2 uses predictive machine learning to target users who are most likely to download an advertiser's app, helping them maximize their return on ad spending. The solution was an immediate hit with its customer base and soon drew in other gaming developers to its ad platform.

Since the launch of Axon 2, AppLovin's results have been stellar. Last quarter, its Q3 revenue soared 68% year over year to $1.4 billion. Even more impressive, though, is that its Q3 2023 adtech revenue was just $504.5 million. That's a nearly 3x increase in two years.

On top of that, its gross margins have also drastically improved, and it's reduced its operating costs as well, which has led to a surge in profitability. Its adtech adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) has gone from $363 million in Q3 of 2023 to nearly $1.2 billion last quarter.

This isn't empty-calorie revenue and profitability growth, as its operating cash flow and free cash flow have also surged. Last quarter, its operating cash flow climbed 93% year over year to $836 million, while the company has minimal capital expenditures (capex), so free cash flow is a similar amount.

Despite its strong growth, AppLovin still has a big opportunity in front of it. The company just launched a self-serve ad manager that will allow more advertisers to directly run their campaigns. This should draw more small and midsize advertisers to its ad platform. Since its introduction at the start of October, its self-service platform has seen 50% weekly growth, so it's off to a fast start. In addition, AppLovin is looking to expand its platform to different markets outside the U.S., which is where the majority of gamers reside.

The even bigger opportunity for the company is expanding beyond the gaming app market. AppLovin believes Axon 2's more predictive nature and increased use of automation should work well in other verticals, including e-commerce.

Early testing has been positive, but the company thinks it can help these customers even more by developing an AI-driven ad-generation tool since it has been found that many customers from other verticals, especially retailers, don't have the best content for its platform. The main reason for this is that its ads tend to run longer than those on social media. If AppLovin can successfully break into the e-commerce ad market, the sky is the limit for the company.

An attractive valuation

Based on next year's analyst estimates, AppLovin's stock trades at a forward price-to-earnings (P/E) ratio of just over 40.5 times, while it has a price/earnings-to-growth (PEG) ratio of 1.1 times. A positive PEG ratio below 1 is typically viewed as undervalued, but growth stocks will often have PEG multiples well in excess of 1.

Given the continued strong growth coming from AppLovin's core gaming business, together with new growth opportunities that are just starting to emerge, the stock looks attractively valued. As such, investors can take advantage of the stock being 20% off its highs and buy this well-positioned growth stock today.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.