Anticipated Increase: Two Shares Set to Outperform Palantir in Value by Half a Decade
In recent times, Palantir Technologies (PLTR 3.22%) has proven to be a stock powerhouse, boasting a staggering 237% increase over the past year and an astonishing 600% rise since its 2020 IPO. Wall Street traders are now jumping aboard this locomotive, hoping for continued momentum.
Palantir's earnings have experienced growth, but not at the same torrid pace as its stock price. Those experienced in value investing are well-aware of the potential dangers associated with purchasing a stock that has outpaced its earnings power so significantly. Currently, Palantir is valued at a colossal $162.23 billion market cap, teetering on the brink of joining the world's top 100 most valuable companies (currently ranked at 104th). Given the substantial gains earned by long-term investors, I proceed with the notion that there may be more promising investment opportunities on the horizon.
Two such stocks could emerge as stronger contenders than Palantir in the next five years, each offering unique investment merits.
1. Airbnb: The travel revolution
To compete with Palantir in market cap, we must scrutinize up-and-coming businesses closely matched in value. Airbnb (ABNB 3.65%) is a prime candidate, as the travel-focused marketplace operates on a lean business model – generating revenue by merely taking a percentage of each booking facilitated through its platform.
Last quarter, Airbnb witnessed $20.1 billion in overall bookings, marking a 10% year-over-year increase. Revenue rose by 10% to hit $3.7 billion, and net income skyrocketed an impressive 37% to $1.4 billion – with a commendable net income margin of 37%.
At a market cap of $85.48 billion, Airbnb boasts vast growth potential. The platform is steadily gaining ground within the travel market while zealously focusing on lodging services. Long-term, Airbnb has the potential to expand into other travel-related segments, like touring, car rentals, and even airline tickets, if it so chooses. Industry growth forecasts suggest the travel sector is poised for an annual 4% increase for the next five years. If Airbnb can maintain its market share, there is no reason to doubt the company's capacity to post a 10% annual revenue growth rate for the subsequent five years.
By 2028, Airbnb's revenue may reach $19.8 billion, while net income could swell to an estimated $7.2 billion.
2. Lockheed Martin: Defense, space, and a solid foundation
As the second stock to potentially surpass Palantir, we turn our gaze to Lockheed Martin (LMT -0.10%). The globally renowned defense and aerospace contractor operates on a market cap of $126.38 billion.
The company's extensive history involves crafting critical defense systems for the U.S. military and its allied nations. Lockheed Martin's offerings span across aircraft, weapon systems, missiles, and even projects designed for space exploration. Contracts with the government ensure a reliable revenue stream, allowing for continuous investment into further advancements and technological breakthroughs.
In 2028, management anticipates generating revenues around the $74.3 billion mark and free cash flow of $6.2 billion. In the third quarter alone, the company announced $700 million in research and capital expenditures to bolster progress and maintain its competitive edge within the defense technology sector.
Revenue growth for Lockheed Martin will not be lightning-fast, but it does not need to be. The stock currently trades at a forward P/E ratio of 19.7, with a healthy 2.5% dividend yield that has grown consistently year after year. I expect Lockheed Martin's trailing net income to gradually expand, perhaps reaching $7.8 billion or slightly above in the next five years.
A comparison of growth prospects
Airbnb's net income potential may reach $7.2 billion by 2028. Lockheed Martin could produce around $7.8 billion in net income for the same time frame. Palantir's growth potential, on the other hand, looks slightly more tenuous.
Over the past 12 months, Palantir has drawn in $2.6 billion in revenue, and earnings have experienced a 30% year-over-year surge. While Palantir's growth trajectory has been impressive, it is far from certain that this rate of growth will be maintained for an extended period. Even the most impressive technology companies can't keep expanding their revenue at breakneck speeds forever before the law of large numbers comes into effect.
To illustrate further, consider Palantir's projected net income figures relative to its current market cap. Assuming the market cap remains constant in five years, the stock will be trading at a P/E ratio of around 50 – far beyond the average P/E ratio of 30 for the S&P 500. With such a lofty valuation, I am convinced that both Airbnb and Lockheed Martin have the potential to pass Palantir's market cap by 2028. In fact, I would not be surprised if Palantir's share price had depreciated by that time compared to its current value.
Why chase after a stock that has already doubled in value within a year? Investors should tread cautiously, as Buying a speculative stock only serves to increase portfolio risk.
Investors should consider the potential dangers of purchasing a stock like Palantir Technologies, which has significantly outpaced its earnings power due to its rapid stock price increase. This situation might indicate more promising investment opportunities with more balanced growth potential.
Airbnb, with its lean business model and growth within the travel market, could potentially surpass Palantir's market cap in the next five years, given the sector's projected annual 4% increase and Airbnb's capacity to post a 10% annual revenue growth rate. Financially-savvy individuals may decide to invest in such an undervalued stock, supporting its market growth.
[In this context, 'investing' and 'money' are implicit, but you can add these words if you'd like for clarity.]
