Meet the monster stock that continues to take over the market

by Junna Base November 11, 2024

The stock market as a whole has had several successes so far this year. The S&P 500 stormed into 2024, confirming its presence in a bull market starting in January. Then the index reached several record highs – and today it is heading for an annual gain of 25%. This is after last year’s 24% increase, making these two very successful years for investors.

What’s more, some high-quality stocks have even beaten the market and posted triple-digit gains – and one of these stocks in particular has caught investors’ attention lately. Although earnings have been strong, analysts are concerned about its high valuation, with Wall Street’s average price forecast even calling for a 48% decline over the next 12 months. But given these concerns, the stock is marching 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.

So which unstoppable stock am I talking about? Palantir Technologies (NYSE:PLTR)a tech company that has been around for about 20 years, but whose profits and stock performance have only really taken off in the last few years. The software-as-a-service (SaaS) company helps its customers aggregate all of their data and use it to make important business decisions – and these can often be game-changing.

Governments have been Palantir’s largest customers for years, but recently a new, rapidly growing customer has been added: the commercial customer. In recent quarters, revenue growth from commercial customers has even exceeded that from government customers – U.S. commercial sales rose 54% year-over-year in the most recent quarter, compared to a 40% increase in U.S. government sales.

Commercial customers are flocking to Palantir because of Palantir’s latest innovation, the Artificial Intelligence Platform (AIP). Launched last year, AIP harnesses the power of AI by bringing together a customer’s data, guiding them to key insights and helping them make better decisions, faster. For example, Cleveland Clinic uses AIP to optimize patient placement Wendy’s uses the platform to improve supply chain management.

Palantir’s U.S. commercial customer count increased 77% to 321 in the quarter, compared to just 14 U.S. commercial customers just four years ago. And the size of its deals has also increased significantly, with the company signing 104 deals worth more than $1 million.

Importantly, all of this is reflected in solid financial results, with the company reporting a record profit of $144 million in the quarter. Palantir also wins when it comes to another metric that is crucial in the SaaS business, the rule of 40. The idea is that SaaS companies should have a revenue growth rate and profit margin that combine to be 40% or more – this suggests that a company is succeeding in prioritizing both profit and growth. Palantir’s Rule of 40 is 68%.

All of this is fantastic – but could Palantir sustain this momentum? I am optimistic for several reasons. As mentioned, AIP is still a new platform and demand is high. So there are plenty of potential customers who could contribute to growth – and existing customers could renew their contracts with Palantir if they’re happy with the results so far.

It’s also worth remembering that AI is also still in its infancy and today’s $200 billion market is expected to reach $1 trillion this decade. Palantir is well positioned to capitalize on this potential growth.

After all, Palantir has been around for years, developing its technology and gaining the trust of customers – all of this hard work over time should help the company today and in this phase of growth.

Of course, at 148 times forecast earnings estimates, Palantir shares aren’t cheap, and that could eventually weaken demand for the stock — and limit near-term gains. Still, these levels aren’t ridiculous for a high-growth tech company in the early stages of its earnings history. And this metric represents a look at earnings forecasts for the coming year, which are more short-term.

Therefore, now may 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 that perspective, this monster stock outperforming the S&P 500 is a good buy right now.

Have you ever felt like you missed the boat when it came to buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts will provide one “Double Down” shaft Recommendation for companies that they think are about to collapse. If you’re worried you’ve already missed your investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Amazon: If you had invested $1,000 when we doubled in 2010, You would have $23,446!*
Apple: If you had invested $1,000 when we doubled in 2008, You would have $42,982!*
Netflix: If you had invested $1,000 when we doubled in 2004, You would have $428,758!*

Right now we’re issuing “Double Down” warnings for three incredible companies, and such an opportunity may not happen again in the near future.

See 3 “Double Down” Stocks »

*Stock Advisor returns from November 4, 2024

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.

Meet the Monster Stock That Continues to Destroy the Market was originally published by The Motley Fool

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