Should You Buy the 27% Dip in AppLovin Stock?

AppLovin (APP 2.24%) is down by roughly 27% year to date, but over the past five years, it has achieved a 687% gain. Do the adtech stock's longer-term returns indicate what lies ahead, or is the recent dip a more meaningful sign of things to come? AppLovin has attracted some short-seller reports, but its fundamentals indicate the company is still growing. Image source: Getty Images. Under fire from short-sellers AppLovin has been the target of multiple short reports in recent years. CapitalWatch was the latest bear to take aim at it, claiming that AppLovin operated a back-end money-laundering scheme. AppLovin rejected those claims, and its legal team demanded that the short-seller retract the report; it received an apology shortly after. Other short-sellers claimed last year that AppLovin copies data from Meta Platforms (META 0.69%) and Alphabet (GOOG 1.83%) (GOOGL 1.99%) for its ad network. That caused a scare, but neither advertising tech giant has taken action on AppLovin related to these claims. The AppLovin team has denied these reports as well, but a Securities and Exchange Commission (SEC) probe of the company remained active in February. If the SEC probe finds that AppLovin's business model revolves around illegal practices, it would undeniably hurt the stock. In the meantime, the company continues to post tremendous revenue growth, including a 59% year-over-year improvement in the first quarter. AppLovin has held onto most of its gains despite the short-seller reports because of its enticing fundamentals. If the SEC probe delivers a verdict that is less impactful than feared, it could trigger another rally for the stock. AppLovin can compete with the giants while expanding its profit margins In Q1, AppLovin achieved a net profit margin of 65.4% -- and that wasn't the first time over the past year that it delivered margins above 60%. The adtech company earned almost $2 billion in the quarter. Compare that to the $56.3 billion that Meta Platforms brought in or the $109.9 billion that Alphabet booked, and it's obvious that it's not going to catch up to those companies anytime soon. However, AppLovin is growing faster than both of them. This growth also comes with rising profits as its AI ad engine continues to deliver positive results for businesses. The adtech company's growth hasn't shown signs of slowing, either. AppLovin's Q1 financial update shows positive sequential growth in every quarter starting from Q2 2023. Net income from continuing operations follows the same script. The more AppLovin scales, the more its margins will expand. Its total costs and expenses went up by only 26.2% year over year in Q1. If costs continue to grow minimally while revenue growth remains elevated, the stage will be set for further margin expansions.Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.