The stock market as a whole has scored several wins so far this year. He S&P 500 roared in 2024, confirming its presence in a bull market starting in January. The index then hit multiple all-time highs and is today on track for a 25% annual gain. This is after last year’s 24% increase, making these two years very successful for investors.
On top of this, some high-quality stocks have even outperformed the market, generating triple-digit gains, and one of these stocks in particular has attracted investors’ attention as of late. Although earnings have been strong, analysts are concerned about its high valuation, with Wall Street’s average price forecast even calling for a 48% drop over the next 12 months. But, against the backdrop of these concerns, the stock is moving forward and is right now on track to gain more than 200% this year.
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Let’s get acquainted with this monster stock that continues to crush the market and consider whether it’s a buy today.
Image source: Getty Images.
So what unstoppable action am I talking about? Palantir Technologies(NYSE: PLTR)a tech player that’s been around for about 20 years, but has seen earnings and stock performance really take off only in the last few years. Software as a Service (SaaS) company helps its customers aggregate all their data and use it to make key business decisions, which can often be game-changing.
For years, governments have been Palantir’s largest customers, but recently a new high-growth customer has emerged: the commercial customer. In recent quarters, revenue growth from commercial customers has even outpaced that from government customers: U.S. commercial revenue increased 54% in the latest quarter year-over-year compared to an increase of 40% for US government revenue
Commercial customers are flocking to Palantir for its latest innovation, its Artificial Intelligence Platform (AIP). Introduced last year, AIP harnesses the power of AI, bringing together a customer’s data and leading them to important discoveries and helping them make better decisions faster. For example, the Cleveland Clinic is using AIP to optimize patient placement and Wendy’s is using the platform to improve supply chain management.
Palantir’s U.S. commercial customer count soared 77% to 321 in the quarter, and that compares to a U.S. commercial customer count of just 14 just four years ago. And the size of the deals has also become significant: the company signed 104 deals valued at more than $1 million.
Importantly, all of this is translating into solid financial results: the company reported a record profit of $144 million in the quarter. Palantir is also winning when it comes to another measure that is key in the SaaS business, and that is the Rule of 40. The idea is that SaaS companies should have a revenue growth rate and profit margin that together are 40% or more; The company manages to prioritize both profits and growth. Palantir’s rule of 40 is 68%.
This is all great, but can Palantir maintain this momentum? I am optimistic for several reasons. As mentioned, AIP is still a new platform and demand is high, so there are many potential customers that can contribute to growth, and current customers could extend their contracts with Palantir if they are happy with the results so far.
It’s also worth remembering that AI is also in its infancy, with the current $200 billion market expected to reach $1 trillion by the end of this decade. Palantir is well positioned to benefit from that potential growth.
Finally, Palantir has been around for years, developing its technology and earning the trust of customers; All that hard work over time should help the company today and move forward in this high-growth phase.
Of course, Palantir stock isn’t cheap, at 148 times forward earnings estimates, and this could at some point weigh on appetite for the stock and limit near-term gains. Still, this level is not ridiculous for a high-growth technology company in the early stages of its earnings history. And this move represents a look at earnings projections for next year, which is fairly short-term.
Therefore, now may be a good time for the long-term investor to look beyond this valuation measure and focus on Palantir’s recent earnings reports and outlook for the coming years. And from this angle, this monster stock that’s outperforming the S&P 500 is a solid buy right now.
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*Stock Advisor returns from November 4, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Meet the Monster Action That Continues to Crush the Market was originally published by The Motley Fool
