Since Donald Trump won the U.S. presidential election in November, some stocks have gone on incredible rallies. In a few cases, it has been a coincidence, but for other stocks, the new president could create a better outlook for them.
Shares of AppLovin (NASDAQ: APP), SoundHound AI (NASDAQ: SOUN), and Geo Group (NYSE: GEO) have all more than doubled since the election. What’s behind their impressive performances of late, and are these stocks good buys today?
AppLovin
As of Monday’s close, shares of tech company AppLovin were up an incredible 121% since Trump’s win. But what sparked the stock’s rally happened the day after, as AppLovin released its third-quarter results on Nov. 6. Investors were thrilled with the company’s strong numbers and its growth potential.
The company, which helps businesses monetize mobile games, reported 39% revenue growth for the period ending Sept. 30, 2024, with sales hitting US$1.2 billion. Investors are excited about a new opportunity in e-commerce, as AppLovin has launched a pilot project involving e-commerce ads, which may unlock a lot more revenue growth.
The stock’s rally coinciding with Trump’s victory may prove to be a coincidence. But if he can improve the economy and help lower interest rates, that can be a positive catalyst for growth stocks such as AppLovin.
However, with the tech stock trading at more than 110 times its trailing earnings, it won’t be easy for it to rise a whole lot higher, and it could be due for a correction unless its bottom line significantly improves in upcoming quarters. Investors who are holding the stock may want to consider cashing out right now because although AppLovin has enjoyed a strong rally in recent months, it could be running out of steam given its astronomical valuation.
SoundHound AI
Another tech stock that has been rallying of late is voice-enabled artificial intelligence (AI) company SoundHound AI. Since Trump’s victory, shares have soared by more than 165%.
Like AppLovin, this is another stock that could benefit from lower interest rates because it will help the unprofitable business raise cash more easily, to help fund its growth.
Shares of SoundHound AI aren’t necessarily up due to Trump; its shares took off in early December as the company announced that its AI Smart Ordering product was live at Torchy’s Tacos locations across the United States. Days later, the company would also announce a deal involving quick-service restaurant chain Church’s Texas Chicken.
The company’s business has been growing rapidly, but whether SoundHound AI can rally higher may depend on whether it can get close to breaking even; its net loss over the trailing 12 months has totaled US$111 million — far higher than its revenue of US$67 million over that time frame.
The past few months have been great for SoundHound AI, but without stronger earnings numbers, it may be difficult for the stock to continue rising because it trades at an extremely high price-to-sales multiple of 65. This is another stock that investors may be better off taking a wait-and-see approach with.
Geo Group
Shares of Geo Group have risen 105% since the election. The company, which provides correctional, detention, and related services, could stand to directly benefit from the president’s tough policies on crime — and specifically border control since it works closely with the government.
Before the election, this wasn’t a terribly exciting stock to invest in. It has posted a profit of just US$36 million in the past four quarters on revenue totaling US$2.4 billion. And in recent years, there’s been minimal revenue growth. Investors are likely betting on hopes that the president’s policies could generate a whole lot more business for Geo Group.
Due to the bullishness around the election, the stock has taken off and now trades at more than 110 times its trailing earnings. It may directly benefit from Trump’s policies, but investors should be careful about assuming the stock is going to continue rising as it, too, has a high valuation.
However, with Geo Group, all it could take is an announcement involving a big deal with the government to send the stock soaring even higher. It may be the most likely of the three stocks listed here to rise in value, but it still may not be suitable for most investors given its high price tag.
