Meet the Monster Stock That Continues to Crush the Market

Key Points

• A monster stock is one that will offer you a well-established business and the potential for explosive revenue gains.

• This player has done a fantastic job of balancing profitability and growth.

• 10 stocks we like better than Palantir Technologies ›

The S&P 500 has roared higher this year, reaching record levels, and even carried this momentum into September -- historically known as the worst month of the year for stock performance. The benchmark, after advancing over the past two years, has climbed 13% this year and about 3% so far this month. This is thanks to investors' optimism that interest rate cuts and flexibility on the United States' import tariffs may offer corporate earnings and stock prices room to run.

On top of this, ongoing spending on artificial intelligence (AI) has fueled corporate revenue growth and excitement about the future of AI companies. That, too, has driven stocks higher. And in this bright environment, certain players have stood out, leading the gains and topping the S&P 500's performance by far. One of them is a company that is helping customers easily apply AI to their operations -- and this player's earnings and stock performance have taken off. The good news for shareholders and potential investors in this tech stock is this momentum may be far from over.

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Now, I'd like to introduce you to the monster stock that continues to crush the market...

Image source: Getty Images.

Leadership and profitability

First, a quick note on what I mean by "monster stock." When I use the term, I think of a company that's proven itself, so one that is profitable and has significantly increased revenue. I also think of leadership in a particular field, and this implies expertise -- this is key because it represents a moat, or competitive advantage. The player also is generally well known, at least in its sector, but the key point here is this doesn't mean it's completely established and won't deliver growth. Instead, this type of company offers you the fantastic combination of a well-constructed business and potential for more growth now and down the road.

Today, this monster that's beating the market is Palantir Technologies (NASDAQ: PLTR), a stock that's climbed a jaw-dropping 1,800% over the past five years. Palantir isn't a young start-up that's just leaped onto the scene though -- this company has been around for more than 20 years, and in its earlier days, counted on government contracts for most of its revenue growth. Palantir sells software platforms that help its customers make better use of their data, and this has come in handy across government departments.

But, in more recent times, and with the launch of Palantir's AI-driven product, known simply as Artificial Intelligence Platform, or AIP, growth has taken off -- and a newish customer has been knocking at the Palantir doors. I'm talking about U.S. commercial customers. About five years ago, Palantir had 14, and today, that number has grown into the hundreds. This shows tremendous growth and leaves plenty of room for even more down the road.

Palantir's double-digit growth

Quarter after quarter over the past couple of years, Palantir has reported double-digit increases in U.S. commercial and government revenue, showing that both of these customer categories are driving momentum. And this is likely to continue thanks to AIP. This platform takes a customer's disparate data, aggregates it, and thanks to the analysis of that data, helps that customer make game-changing decisions or create new products or services, for example. To introduce customers to the many possibilities, Palantir offers AIP bootcamps, a move that's been highly successful, resulting in bootcamp attendees signing contracts in the days or weeks following the camp.

Another potential growth driver for Palantir is international business, as we can see through a recent win. Palantir announced a deal with the U.K. government that could be worth more than $900 million in defense business over the coming five years.

Rule of 40

As mentioned, Palantir's revenue growth has been soaring, but importantly, this company has balanced growth with the ability to generate profit. Its rule of 40, a metric used to determine how well software companies are doing in this area, illustrates this. A score of 40% or higher is considered great. In the latest quarter, Palantir wowed investors with a score of 94%.

The one negative about Palantir is the company's valuation, with the stock trading at more than 200 times forward earnings estimates. So, the stock isn't the right choice for investors who focus on valuation and aim to buy value stocks. But investors looking for growth should keep this in mind: Valuation metrics consider sales in the near future but not several years down the road.

So, this monster stock that continues to crush the market may continue to do so -- and could be a great buy for long-term growth investors.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.