Many hypergrowth stocks soared in 2021 as stimulus checks, social media buzz and commission-free trading apps attracted legions of new investors. But over the next two years, many of those stocks collapsed as rising interest rates squeezed their valuations, exacerbated their losses and drove investors toward more conservative investments.
But today, a lot of those hypergrowth stocks look fairly valued relative to their growth. I believe three of those names — Palantir (NYSE: PLTR), symbolic (NASDAQ: SYM)And SentinelOne (NYSE: S) — are still worth buying today.
1. Palantir
Palantir develops data mining and analytics tools for government agencies and large enterprise customers. Its artificial intelligence (AI)-powered services can be used to aggregate data from different sources to help organizations make more efficient decisions.
Palantir’s revenue rose 24% in 2022 and 17% to $2.2 billion in 2023, but it fell short of its original goal of growing revenue at least 30% annually through 2025. It blamed the slowdown primarily on uneven government spending and macroeconomic headwinds for its commercial business.
However, it expects revenue to rise 20% to 21% in 2024 as government operations stabilize and U.S. commercial activity accelerates. Analysts expect revenue to grow at a compound annual growth rate (CAGR) of 20% from 2023 to 2026.
Palantir’s stabilizing growth is encouraging, and the company has remained profitable for six consecutive quarters under generally accepted accounting principles (GAAP). Analysts expect GAAP earnings per share (EPS) to grow at a CAGR of 56% from 2023 to 2026. The stock isn’t cheap at 21 times this year’s revenue, but it could still have plenty of room to grow as the AI market expands.
2. Symbolic
Symbotic develops automated robots for handling pallets and boxes in warehouses. The company claims that a $50 million investment in just one of its modules (including its robots and software) can generate $250 million in lifetime savings over 25 years.
Symbotic’s revenue grew 136% in 2022 and 98% to $1.18 billion in 2023, and analysts expect it to continue growing at a compound annual growth rate of 45% from 2023 to 2026. It narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss from $90 million in 2022 to $18 million in 2023, and analysts expect that metric to turn positive in 2024 and grow at a CAGR of 165% through 2026.
Those growth numbers are impressive, but Symbotic shares are down more than 30% this year as three issues spooked the bulls. First, it still generated 88% of its revenue from Walmart (NYSE: WMT) in fiscal 2023 (which ended last September) and competitors could hinder the company’s ability to meaningfully diversify its customer base in the coming years.
Second, it increased its share count by more than 60% in the past 12 months through its secondary share issuances and equity compensation. Finally, the stock still doesn’t look cheap at 11 times this year’s sales. But despite all these challenges, I believe Symbotic can still be a promising player in the growing warehouse automation market.
3. SentinelOne
SentinelOne is a cybersecurity company that automates its entire threat detection process via AI algorithms on its Singularity Extended Detection and Response (XDR) platform instead of relying on human analysts. The company claims this approach is faster, more accurate, and easier to scale for growing organizations.
SentinelOne’s annual revenue more than doubled in fiscal 2021, 2022 and 2023 (which ended last January). Revenue rose another 47% to $621 million in fiscal 2024, but that slowdown, largely attributed to macro headwinds, spooked bulls. The lack of profits also made it a tough stock to hold in a high-interest-rate environment, which is why the stock is down more than 20% this year and is still trading 40% below its IPO price.
But looking ahead, analysts expect revenue to grow at a 27% CAGR from fiscal 2024 and 2027. They also expect adjusted EBITDA to be positive in fiscal 2026. We should take those estimates with a grain of salt, but the stock seems fairly valued right now at 8x this year’s revenue. It could be a great way to profit from the AI-driven disruption of traditional cybersecurity companies, and it could be an attractive acquisition target for one of the larger rivals.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and Walmart. The Motley Fool has a disclosure policy.
3 Hypergrowth Stocks to Buy in 2024 and Beyond was originally published by The Motley Fool
