Growth investing methods often look for companies that are not only expanding, but also gaining speed and showing better financial performance. One organized method for this 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 upward earnings adjustments and surprises, rising sales, growing margins, solid cash flow, profit growth, upward profit momentum, and a good return on equity. A recent filter using this system has identified Palantir Technologies Inc-A (NASDAQ:PLTR) as a stock that merits more study.
Fitting the "Little Book" Rules
The filter's settings, based on Navellier's eight rules, are made to find companies displaying strong, varied growth. Palantir's recent financial results indicate it meets these standards with clear force.
- Upward Earnings Adjustments: Analysts have greatly increased their forecasts, with the average EPS estimate for the next quarter moved up by 36.0% over the past three months. This is a clear sign that experts anticipate better fundamentals, a central idea of Navellier's method which prizes rising estimate momentum.
- Positive Earnings Surprises: Steadiness in surpassing forecasts is important. Palantir has reported a positive EPS surprise in 3 of the past 4 quarters, with an average exceedance of 10.5%. This history of beating estimates can lead analysts to keep updating their models, possibly causing more estimate changes.
- Rising Sales Growth: Revenue expansion is essential. Palantir displays very fast growth here, with year-over-year revenue increasing 56.2% and quarter-over-quarter sales rising 70.0%. For a growth-centered method, this gain in revenue creation is a main sign of market need and company performance.
- Growing Operating Margin: Profits must increase with sales. Palantir's operating margin has grown by a very large 191.7% over the last year. This shows notable operating leverage, meaning the company is turning added revenue into profit at a higher rate, a sign of an effective, enlarging business.
- Solid Cash Flow: In the end, growth must produce cash. Palantir's free cash flow increased by 84.1% over the past year. Good and increasing cash flow supplies the means for internal investment and financial soundness, lowering the need for outside funding.
- Earnings Growth: Profit growth is critical. The company's EPS grew 82.9% year-over-year and 78.6% quarter-over-quarter. This forceful profit increase is the final result for growth investors.
- Upward Earnings Momentum: The method looks for gaining speed. Palantir's current quarterly EPS growth (78.6%) is higher than its growth rate from the same quarter a year prior (75.0%), showing upward earnings momentum.
- Good Return on Equity (ROE): The company produces a solid 22.0% return on equity, well above the filter's 10% minimum. A high ROE shows management is using shareholder money well to create profits.
Basic Financial Soundness and Price Considerations
An examination of Palantir's wider fundamental analysis report gives needed background. The company receives a good total fundamental score of 7 out of 10, with high marks in Growth (10/10) and Financial Soundness (9/10). Its profitability is also firm (7/10), backed by sector-leading margins and returns on capital.
However, the report plainly notes the stock's price as high, with a score of 3 out of 10. With a Price/Earnings ratio close to 198 and a forward P/E of 110.8, the market expects many years of future expansion. This is the main conflict for investors: the company's present business results are outstanding across many measures liked by growth filters, but it carries a high cost that allows little margin for problems.
A First Step for More Study
Palantir's presence in this filter is a straight outcome of its excellent recent results across the particular, momentum-focused measures set by Navellier's rules. It shows the kind of company the method tries to find: one with gaining sales, fast-rising profitability, and firm analyst opinion.
It is important to see this not as advice, but as a first step for more detailed investigation. The "Little Book" filter is a strong tool, and investors should review the complete list of passing stocks. You can find more companies now meeting this growth-centered filter by viewing the live results here.
Disclaimer: This article is for information only and is not financial guidance, a support, or a suggestion to buy, sell, or keep any security. The "Little Book That Makes You Rich" filter is a model built on past rules and does not promise future results. All investment choices carry risk, including the possible loss of the original investment. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.