3 Big Reasons Palantir Stock Will Keep Flying Higher

May 21, 2023

Editor’s Note: Today we’re sharing an essay from tech analyst Luke Lango that was published on May 17 on InvestorPlace.com. Luke is a Caltech alum and economist who has identified many up-and-coming growth stocks well before they were household names, like Advanced Micro Devices, Shopify, Tesla, NIO, and Chegg. Below, he discusses how one tech stock is poised for triple-digit gains over the next 12 months.

Throughout 2022, AI-powered data science firm Palantir Technologies Inc. (PLTR) couldn’t catch much of a break. No matter what the company did – good, bad, or ugly — PLTR stock, despite seeing a few bouts of strength, ultimately kept crashing lower.

This year has been a completely different story.

Year-to-date, PLTR stock has risen nearly 50%, all while the S&P 500 has been nearly flat. And just last week, after the company reported on an impressive double-beat-and-raise quarter, Palantir stock popped 20%.

We think this is the start of a much bigger breakout in Palantir stock. And, according to our analysis, it will push shares more than 100% higher over the next 12 months.

In any event, we’re feeling very confident about Palantir stock being a huge winner in 2023.

And there are three big reasons why.

Reason No. 1: Palantir Stock Is in a Technical Breakout

This looks like the start of a big technical breakout in Palantir stock. The chart really couldn’t be more bullish.

Over the past few weeks, PLTR has retaken its 200-day moving average, commandingly broken above its two-year downtrend resistance line (that it failed at four times before), and formed a new bullish uptrend that it has successfully tested and held several times.

The technical setup couldn’t be more bullish. Palantir stock is breaking out of its technical downtrend and is starting a new technical uptrend.

If this new uptrend persists, the stock could soar 100% more this year alone.

Reason No. 2: PLTR Is Too Cheap for Its Own Good

The stock market crash of 2022 left PLTR trading at its most attractive valuation level ever. And that gives it plenty of room to rally in 2023 as the stock’s trend changes direction.

As of this writing, Palantir stock trades around 10x trailing sales. Ostensibly, that’s a rich sales multiple. But analysts expect Palantir to grow earnings by nearly 50% annually over the next five years. For 50% annualized EPS growth, this sales multiple is actually pretty cheap.

Indeed, Palantir stock has never been this cheap before. On a sales-multiple-to-growth-prospects basis, PLTR is trading at 0.17x its long-term growth prospects. That’s pretty much an all-time low.

When big-time growth trajectories converge on super-discounted valuations, you tend to get big winners in the stock market. That’s exactly what you have today with PLTR stock.

Reason No. 3: Margin Expansion

The last – and arguably best — reason why Palantir stock will keep soaring in 2023 is because the company’s profit margins are set to meaningfully expand this year.

Palantir is an early-stage growth company with a best-in-class, high-demand product in a rapidly growing industry. As such, no one has ever really questioned the company’s long-term revenue growth prospects.

Pretty much everyone knows this company will grow revenues by 20% to 30% over the next several years.

The question surrounding Palantir stock has always revolved around profit margins. That is, can Palantir grow quickly and profitably?

Unsurprisingly, then, Palantir stock has consistently traded according to its profit margins. When profit margins compress, PLTR drops. When profit margins expand, the stock rises.

In 2023, Palantir’s profit margins are set to meaningfully expand after compressing throughout 2021 and ’22.

Management has made profitability their “north star,” and they are cutting costs left and right this year. This expense streamlining is allowing the company to not only expand profit margins but also become profitable on a GAAP basis for the first time in its history.

Given the historical relationship between Palantir’s profit margins and its stock price, it seems very likely that as margins expand in 2023, the PLTR stock price should rise sharply too. However, it should be noted that margins aren’t the only factor at play, as other mitigating factors could keep a lid on Palantir stock’s price.

The Final Word

When are fortunes most consistently made in the stock market?

When bear markets turn into bull markets.

That’s because bear markets leave stocks trading at “left-for-dead” valuations. So when the bear market ends and a new bull market starts, everyone rushes to buy stocks at generational discounts. And those stocks soar.

It happens every time.

It happened in 2020, after the COVID-19 crash; in 2009, when the 2008 financial crisis ended; and in 2002, after the dot-com bubble. And in the 12 months after each of those bear markets ended, at least a dozen stocks rose more than 1,000%.

I’m telling you this because we’re in a bear-to-bull-market transition right now.

In 2022, stocks got crushed by rising inflation, an increasingly hawkish Fed, and deteriorating economic conditions. And thanks to falling inflation, an increasingly dovish Fed, and stabilizing economic conditions, they’re soaring back to life in 2023.

The mainstream media may still be telling you that the stock market is shaky, the economy is going into a recession, and inflation is making a comeback.

But while the media is selling fear, the smart money on Wall Street is getting greedy.

They know the magnitude and rarity of the opportunity before them right now.

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