The stock market as a whole has had several wins so far this year. The S&P500 roared into 2024, cementing its presence in a bull market from January. The index then reached several record highs and today it is heading for an annual gain of 25%. This is after the 24% increase last year, making these two years very successful for investors.
What’s more, some high-quality stocks have even beaten the market and delivered triple-digit gains – and one of these stocks in particular has caught investors’ attention lately. While earnings have been strong, analysts are concerned about its high valuation, with Wall Street’s average price forecast even predicting the stock will fall 48% over the next 12 months. But against the backdrop of these concerns, the stock is moving on and is currently on track for a gain of more than 200% this year.
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Let’s get to know this monster stock that continues to crush the market – and consider whether it’s a buy today.
Image source: Getty Images.
What unstoppable stocks am I talking about? Palantir Technologies(NYSE:PLTR)a technology player that has been around for about twenty years, but has only seen its earnings and stock performance really take off in the past few years. The software-as-a-service (SaaS) company helps its customers bring all their data together and use it to make important business decisions – and these can often be game-changing.
For years, governments were Palantir’s largest customers, but recently a new fast-growing customer has emerged: the commercial customer. In recent quarters, commercial customer revenue growth has even outpaced government customer revenue growth, with U.S. commercial revenue rising 54% year-over-year last quarter, compared to a 40% increase for U.S. government revenue.
Commercial customers are flocking to Palantir because of its latest innovation, the Artificial Intelligence Platform (AIP). Introduced last year, AIP leverages the power of AI as it brings together a customer’s data, leading that customer to important discoveries and helping them make better decisions faster. For example, the Cleveland Clinic uses AIP to optimize patient placement Wendy’s uses the platform to improve supply chain management.
Palantir’s number of commercial customers in the US rose 77% this quarter to 321 – and that compares with a number of commercial customers in the US of just 14 just four years ago. And the deal size has also become significant: the company has signed 104 deals worth more than $1 million.
Importantly, all of this translates into solid financial results, with the company reporting record profits of $144 million in the quarter. Palantir also wins when it comes to another metric that is critical in the SaaS business, namely the Rule of 40. The idea is that SaaS companies should have revenue growth and profit margins that combine to be 40% or higher – this suggests a The company is successful in prioritizing both profit and growth. Palantir’s rule of 40 is 68%.
This is all great – but could Palantir keep this momentum going? I’m optimistic for a few reasons. As mentioned, AIP is still a new platform and demand is high, so there are plenty of potential customers to contribute to the growth – and current customers could expand their contracts with Palantir if they like the results so far.
It’s also worth remembering that AI is also still in its early stages, with a $200 billion market forecast to reach $1 trillion later this decade. Palantir is well positioned to benefit from that potential growth.
Finally, Palantir has been around for years, building its technology and gaining customer trust. All that hard work should help the company today and move it forward in this phase of rapid growth.
Of course, Palantir’s shares aren’t cheap at 148 times forward earnings estimates, and this could dampen appetite for the stock at some point – and limit near-term gains. Still, this level is not ridiculous for a fast-growing tech company that is still in the early stages of its earnings story. And this metric represents a look at earnings forecasts for the coming year, which is quite short-term.
So now could be a good time for the long-term investor to look beyond this valuation metric and instead focus on Palantir’s recent earnings reports and outlook for the coming years. And from this angle, this monster stock that beats the S&P 500 makes a solid buy right now.
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*Stock Advisor returns November 4, 2024
Adria Cimino has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Meet the monster stocks that continue to crush the market, originally published by The Motley Fool
