The stock market as a whole has scored several wins so far this year. The S&P 500 roared into 2024, confirming its presence in a bull market as of January. Then the index went on to reach multiple record highs — and today it’s heading for a 25% annual gain. This is after last year’s 24% increase, making these two years very successful ones for investors.
On top of this, some high-quality stocks have even beaten the market, delivering triple-digit gains — and one of these stocks in particular has attracted investors’ attention in recent times. Though earnings have been strong, analysts have worried about its high valuation, and Wall Street’s average price forecast even calls for it to fall 48% over the coming 12 months. But, against the backdrop of these concerns, the stock marches on and right now is on track for a gain of more than 200% this year.
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Let’s meet this monster stock that continues to crush the market — and consider whether it’s a buy today.
Image source: Getty Images.
So, which unstoppable stock am I talking about? Palantir Technologies(NYSE: PLTR), a tech player that’s been around for about 20 years but has seen earnings and share performance truly take off only over the past couple of years. The software-as-a-service (SaaS) company helps its customers aggregate all of their data and use it to make key business decisions — and these often can be game-changing.
For years, governments have been Palantir’s biggest customers, but in recent times, a new high-growth customer has emerged: the commercial customer. In the latest quarters, the commercial customer’s revenue growth has even surpassed that of government customers — U.S. commercial revenue surged 54% in the recent quarter year over year compared with a 40% increase for U.S. 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 as it brings together a customer’s data and leads that customer to important discoveries and helps 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 only 14 just four years ago. And deal size has become significant too, with the company signing 104 deals valued at more than $1 million.
Importantly, all of this is translating into solid financial results, with the company reporting record profit of $144 million in the quarter. Palantir also is winning when it comes to another measure that’s key in the SaaS business, and that’s the Rule of 40. The idea is SaaS companies should have a revenue growth rate and profit margin that together are 40% or higher — this suggests a company is successful at prioritizing both profit and growth. Palantir’s Rule of 40 is 68%.
All of this is fantastic — but could Palantir keep this momentum going? I’m optimistic for a few reasons. As mentioned, AIP still is a newish platform, and demand is high, so there are plenty of potential customers out there who may add to growth — and current customers might expand their contracts with Palantir if they’re satisfied with results so far.
It’s also worth remembering that AI, too, is in its early days, with today’s $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 the confidence of customers — all of that hard work over time should help the company today and moving forward in this high-growth phase.
Of course, Palantir’s shares aren’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 isn’t ridiculous for a high-growth technology company in the early stages of its earnings story. And this measure represents a look at earnings projections over the coming year, which is rather short term.
So now may be a good time for the long-term investor to look beyond this valuation measure and instead focus on Palantir’s recent earnings reports and prospects over the several years to come. And from this angle, this monster stock that’s beating the S&P 500 makes a solid buy right now.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
