Throughout 2022, AI-powered data science firm Palantir (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.
Over the past six weeks alone, Palantir stock has shot up nearly 70%. Just two days ago, the stock popped in a torrid 22% rally after the company reported excellent quarterly numbers.
Dead cat bounce? Nope.
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!
That’s why we own the stock in our Innovation Investor Core model portfolio – which, for what it’s worth, is already up 30% in 2023.
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 #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 has successfully been tested and held four separate 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 #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 at 11X 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, an 11X sales multiple is actually pretty cheap.
On a sales-multiple-to-growth-prospects basis, PLTR is trading at 0.2X 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 #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 not just allowing the company to expand profit margins but to 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, 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 crash. It happened 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%!
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.
Why else do you think Palantir stock is up 70% over the past six weeks?
It’s not alone. More than 160 stocks have already risen more than 100% this year. An astounding 505 stocks have already risen more than 50% in 2023.
It’s not even the end of February yet.
A new bull market is here, and fortunes are already being made. Are you scoring these big returns in your portfolio? Or are you sitting idly by while the professional traders are getting rich?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.