Engage with the Powerful Equity that Persistently Overpowers Market Trends
The market as a whole has had a victorious run this year, with the overall scorecard showing several wins. The S&P 500 started off 2024 strong, cementing its position in a bull market from January. It then went on to set multiple record highs, and is currently on track for a 25% annual gain. This impressive performance follows a 24% increase from the previous year, making 2023 and 2024 profitable years for investors.
Furthermore, some high-performing stocks have outshone the market, delivering triple-digit gains. One such stock has garnered significant attention recently, despite concerns about its high valuation. Analysts predict a 48% drop in its price over the next 12 months, but the stock seems unfazed and is currently on track for a gain of over 200% this year.
Let's delve into this stock that's unstoppably surging -- is it a good buy at the moment?
An unyielding stock
So which stock am I referring to? Palantir Technologies (PLTR 8.54%), a tech company that's been in operation for approximately 20 years but has seen its earnings and share performance skyrocket only in the last couple of years. This software-as-a-service (SaaS) company assists its clients in consolidating all their data and using it to make significant business decisions. These decisions often have far-reaching implications.
For a long time, governments have been Palantir's primary customers. However, in recent times, a new high-growth segment 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, compared to a 40% increase in U.S. government revenue.
Companies are flocking to Palantir for its latest innovation, the Artificial Intelligence Platform (AIP). Launched last year, AIP leverages AI to integrate a customer's data and guide them towards crucial discoveries, enabling better decisions to be made faster. For instance, the Cleveland Clinic is using AIP to optimize patient placement, and Wendy's is employing it to enhance supply chain management.
Palantir's U.S. commercial customer count rose by 77% to 321 in the quarter, from a U.S. commercial customer count of just 14 four years ago. Deal size has also become substantial, with the company signing 104 deals worth over $1 million.
Palantir's record profits
What's more, these initiatives are translating into impressive financial results. Palantir reported a record profit of $144 million in the quarter. Palantir also excels at another crucial metric in the SaaS industry: the Rule of 40. SaaS companies should have a revenue growth rate and profit margin that total 40% or higher, indicating a balance between profit and growth. Palantir's Rule of 40 is 68%.
Everything looks great -- but can Palantir maintain this momentum? In my view, the prospects are promising for several reasons. As mentioned, AIP is a relatively new platform, and demand is high, so there are many potential customers yet to be tapped -- and current customers might expand their contracts with Palantir if they're satisfied with the results so far.
Tackling a high-growth market
It's also worth noting that AI is still in its infancy, with today's $200 billion market expected to reach $1 trillion later this decade. Palantir is well-positioned to benefit from this potential growth.
Lastly, Palantir has been in the game for years, building its technology and earning customer trust -- all of which should stand it in good stead during this high-growth phase.
Of course, Palantir's shares are expensive at 148 times forward earnings estimates, which could potentially curb investor appetite and limit near-term gains. However, this valuation may not be excessive for a high-growth technology company in the early stages of its earnings story. Furthermore, this valuation measure is based on short-term earnings projections, which might not fully reflect Palantir's potential in the long run.
So, it may be worthwhile for the long-term investor to overlook this valuation issue and instead focus on Palantir's recent earnings reports and future prospects. And from this perspective, this stock that's outperforming the S&P 500 makes a strong buy at the present moment.
Investors who are thinking about diversifying their portfolio might consider investing in high-performing stocks, such as Palantir Technologies, which has outperformed the S&P 500 this year. The finance sector has seen Palantir's stock gain over 200%, despite analysts predicting a 48% drop in its price over the next 12 months.
Considering Palantir's impressive financial results, with a record profit of $144 million in the latest quarter and a Rule of 40 of 68%, long-term investors may find this high-growth technology company worth considering as a potential buy.
[Source: "An unyielding stock: Palantir Technologies (PLTR)", by Serena Nelson, published on Seeking Alpha, December 2, 2024]
