Many hypergrowth stocks soared in 2021 as stimulus checks, social media buzz, and commission-free trading apps brought in legions of new investors. But over the following two years, many of those stocks crumbled as rising rates compressed their valuations, highlighted their losses, and drove investors toward more conservative investments.
But today, many of those hypergrowth stocks look reasonably valued relative to their growth. I believe three of those names -- Palantir(NYSE: PLTR), Symbotic(NASDAQ: SYM), and SentinelOne(NYSE: S) -- are still worth buying right now.
Image source: Getty Images.
1. Palantir
Palantir develops data mining and analytics tools for government agencies and large enterprise customers. Its artificial intelligence (AI)-driven services can be used to aggregate data from disparate sources to help organizations make more efficient decisions.
Palantir's revenue rose 24% in 2022 and 17% to $2.2 billion in 2023, but it fell short of its original goal of growing its revenue by at least 30% annually through 2025. It mainly blamed that slowdown on uneven government spending and macro headwinds for its commercial business.
However, it expects its revenue to rise 20% to 21% in 2024 as its government business stabilizes and its U.S. commercial business accelerates. Analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 20% from 2023 to 2026.
Palantir's stabilizing growth is encouraging, and it's stayed profitable on a generally accepted accounting principles (GAAP) basis for six consecutive quarters. Analysts expect its GAAP earnings per share (EPS) to grow at a CAGR of 56% from 2023 to 2026. Its stock isn't cheap at 21 times this year's sales, but it could have plenty of room to run as the AI market expands.
2. Symbotic
Symbotic develops automated robots for processing pallets and cases in warehouses. It claims a $50 million investment in just one of its modules (which include its robots and software) can generate $250 million in lifetime savings over 25 years.
Symbotic's revenue surged 136% in 2022 and 98% to $1.18 billion in 2023, and analysts expect it to continue growing at a compound annual growth rate of 45% from 2023 to 2026. It narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss from $90 million in 2022 to $18 million in 2023, and analysts expect that metric to turn positive in 2024 and grow at a CAGR of 165% through 2026.
Those growth rates are impressive, but Symbotic's stock has declined more than 30% this year as three issues spooked the bulls. First, it still generated 88% of its revenue from Walmart (NYSE: WMT) in fiscal 2023 (which ended last September), and its competitors could prevent it from meaningfully diversifying its customer base over the next few years.
Second, it increased its share count by more than 60% over the past 12 months through its secondary stock offerings and stock-based compensation. Lastly, the stock still doesn't look cheap at 11 times this year's sales. But despite all these challenges, I believe Symbotic could still be a promising play on the growing warehouse automation market.
3. SentinelOne
SentinelOne is a cybersecurity company that automates its entire threat detection process through AI algorithms across its Singularity extended detection and response (XDR) platform instead of relying on human analysts. It claims that approach is faster, more accurate, and easier to scale for growing organizations.
SentinelOne's annual revenue more than doubled in fiscal 2021, 2022, and 2023 (which ended last January). Its revenue rose another 47% to $621 million in fiscal 2024, but that deceleration -- which it mainly attributed to the macro headwinds -- spooked the bulls. Its lack of profits also made it a tough stock to hold in a high interest rate environment. That's why its stock stumbled more than 20% this year and remains 40% below its IPO price.
But looking ahead, analysts expect its revenue to grow at a CAGR of 27% from fiscal 2024 and 2027. They also expect its adjusted EBITDA to turn positive in fiscal 2026. We should take those estimates with a grain of salt, but its stock looks reasonably valued now at 8 times this year's sales. It could be a great way to profit from the AI-driven disruption of traditional cybersecurity companies, and it might be a compelling takeover target for one of its larger competitors.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $761,658!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 2, 2024
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and Walmart. The Motley Fool has a disclosure policy.
