Baillie Gifford Names CoStar and Duolingo Its Top Comeback Candidates for 2026
Baillie Gifford investment specialist Ben James named CoStar and Duolingo as two beaten-down stocks his firm expects to recover.
James, who works on the firm's US equity growth strategy, argues the market has punished both companies for spending that could pay off later.
The asset manager is known for holding high-growth companies for long periods, and it remains invested in both.
The Homes.com bill is hiding a profitable core
CoStar has poured billions into Homes.com, a residential listings push aimed squarely at Zillow.
That spending has buried the economics of its commercial data business underneath it.
CoStar Suite and Apartments.com still run at 20% adjusted operating margins, while the reported P/E sits near 160x.
The bear case is that Homes.com keeps burning cash without breaking Zillow's grip on residential listings. Hedge fund holdings in the name fell from $2.0B to $1.6B in Q2, a sign institutional patience is thinning.
James sees the opposite, describing the residential investment as a playbook that eventually leads to high profitability.
Duolingo's monetization push backfired
James blames Duolingo's slide on a monetization drive that came at the cost of user experience.
He points to a pivot back toward engagement as the reason to stay invested. Sales are still rising, but the pace has slowed to 18.3%, while profit is down 26% from a year ago.
Q3 revenue guidance implies 11.1% growth, far below the 40%-plus pace investors had grown used to.
Daily active users still grew 23%, the core of the bull case. Duolingo is still making money, posting an 11.7% operating margin while holding $1.3B in cash. Its valuation has compressed from 200x earnings to roughly 18x forward earnings.
The overhang is what investors call the AI paradox. Duolingo uses AI in its product, but widely available chatbots could make basic language learning free.
CEO Luis von Ahn emptied his direct Class A stake through 10b5-1 sales totaling $17.5M over six months. Evercore ISI carries a $210 target and compares the reset to Netflix in 2022, while 17 of 25 analysts rate the stock Hold against a median target of $96.
James frames both setbacks as near-term margin pressure from growth investments, describing them as a significant growth opportunity the market has dismissed.
The bet is straightforward but far from settled. Homes.com still has to take meaningful share, while Duolingo has to turn its growing audience into more paying users. Neither has proven it can do that yet.
