Growth investing methods often look for companies showing not just present performance, but quickening speed in important financial areas. One organized method for locating these stocks is described in Louis Navellier’s The Little Book That Makes You Rich, which lists eight basic rules for choosing excellent growth stocks. These rules center on good earnings revisions and surprises, rising sales, growing profitability, solid cash flow, earnings growth, good earnings speed, and a high return on equity. A recent filter using this system has identified Palantir Technologies Inc-A (NASDAQ:PLTR) as a stock that deserves more study.
Fit with the "Little Book" Rules
Palantir’s recent financial results show a good fit with many of Navellier’s main ideas. The company’s numbers suggest it is functioning with notable speed.
Good Earnings Revisions and Surprises: A key part of the method is that higher revisions in analyst estimates frequently come before strong results. Palantir fits this rule, with the average EPS estimate for its next quarter being increased by about 36% in the past three months. Also, the company has a history of beating estimates, having reported good earnings surprises in three of its last four quarterly results, with an average beat above 10%.
Solid Sales and Earnings Growth: The method requires proof of quickening business growth. Palantir meets this with notable growth rates:
- Revenue Growth (Year-over-Year): 56.2%
- Revenue Growth (Quarter-over-Quarter): 70.0%
- EPS Growth (Year-over-Year): 82.9%
- EPS Growth (Quarter-over-Quarter): 78.6%
Growing Profitability and Solid Cash Flow: For a growth company, better margins indicate operational efficiency and pricing strength. Palantir’s operating margin has increased greatly, rising by about 192% in the past year. At the same time, the company is producing significant cash to support its operations and growth, with free cash flow jumping 84% in the last twelve months.
Good Earnings Speed and High Return on Equity: The method looks for quickening, not just growth. Palantir’s present quarterly EPS growth (78.6%) is faster than its growth from the same quarter a year ago (75.0%), showing positive speed. Finally, the company produces a healthy return for shareholders, with a Return on Equity (ROE) of 22.0%, easily passing the method’s minimum level of 10%.
Basic Health and Price Context
A look at Palantir’s wider basic profile, as shown in its detailed analysis report, supports its position as a high-growth business while noting points for investor thought.
The company gets high ratings for both financial health and profitability. It has no debt and holds solid liquidity, with current and quick ratios above 7.0. Profitability numbers are strong, with sector-leading operating, profit, and gross margins. Its ROE and Return on Assets are also at the top of its software industry group.
Expectedly for a company with such growth numbers, the price is high. Palantir trades at high Price-to-Earnings and Price-to-Forward Earnings ratios, both compared to its industry and the wider S&P 500. The basic report gives a low rating for price but balances this with a high rating of 9 out of 10 for growth, noting strong past results and forecasts for continued solid growth in both revenue and earnings.
Method Fit and Investor Thoughts
For an investor using a method like Navellier’s, Palantir offers a strong case. It clearly meets the specific, speed-focused filters made to find companies in a period of quickening financial results. The solid sales growth, fast-rising profitability, and regular earnings beats describe a company performing well on its growth plans.
However, the investment case is not without notes. The present price is high, meaning much of its future growth is already expected by the market. This makes the stock possibly more reactive to any shortfall in its growth path or a wider change in market feeling away from high-ratio growth stocks. Also, while the long-term direction for the S&P 500 is currently down, Palantir’s results will be closely linked to its ability to maintain its own exceptional operational speed separate from the wider market’s path.
Looking for More
Palantir Technologies is one of the companies that passed a filter based on the ideas from The Little Book That Makes You Rich. Investors wanting to find other stocks that presently meet these specific growth and speed rules can view the complete filter here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for an investment decision. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.
