There is no doubt about it. Palantir (NASDAQ: PLTR) was one of the biggest successes in the stock market in 2024.
With one day left in the calendar year, Palantir stock is up a whopping 349% for the year.
Almost everything has gone well for the stock software. Its revenue growth has accelerated over the past few quarters, and its operating margin has also expanded. Along the way, the company has gained access to the S&P 500 and the Nasdaq-100. The company appears to have transitioned from a specialist data fusion company serving mainly government customers to one that is quickly being embraced by commercial customers for artificial intelligence (AI) and broader uses.
However, along the way, Palantir's valuation has inflated significantly. Even after a modest pullback, the stock is now trading at sky highs price-to-sales ratio of 72. That means that even if its profits were as high as its sales, it would still be twice as expensive as the S&P 500. That puts a lot of pressure on the stock to continue to gain from here, as the stock is likely to fall if its growth slows.
For investors, there are better stocks to buy over the next five years. Keep reading to see two of them.
Image source: Getty Images.
Axon Enterprise (NASDAQ: AXON) has also achieved massive success in 2024, with the stock up 134% through December 30, and has benefited from trends similar to Palantir.
Like Palantir, Axon is also expected to benefit from policies from the incoming Trump administration. Axon is a law enforcement technology company that makes Taser stun guns and body cameras as well as a cloud software platform that helps law enforcement agencies manage things like evidence and records. Investors expect spending on law enforcement activity to increase under Donald Trump due to proposals such as mass deportation, and Axon figures to be a winner.
The stock gained 4% the day after the election and then jumped the following week on a beat earnings report and a strong rally.
At a market cap of $46 billion, Axon is much smaller than Palantir, which is currently worth $175 billion, but a lot can change over five years, and Axon is also harnessing the power of AI, demonstrating its knack for industry innovation . it dominates now. It even formed Axon AI in 2017, showing that it is ahead of the technology curve.
Earlier this year, it introduced Draft One, an AI-powered tool that generates draft reports directly from body camera footage, saving officers valuable time. Investors should expect similar developments from Axon over the next five years, driving revenue and profits higher.
Axon is expensive, trading at a price-to-sales ratio of 24.3, but that's still much cheaper than Palantir. With a clear path to growth and margin expansion, Axon still looks poised for solid growth over the next five years, while Palantir is likely to face significant multiple compression. By 2030, I think Axon will be the most valuable company.
Another longtime winner in the market is MercadoLibre (NASDAQ: MELI)a Latin American e-commerce and digital payments company. The stock is up almost 6,000% since its IPO in 2009, having achieved consistent strong growth.
MercadoLibre has followed a similar path to Amazondeveloping a core business as a direct e-commerce retailer before layering on higher margin businesses such as digital payments, a third-party marketplace, point-of-sale devices for brick-and-mortar merchants, advertising, and other features that include a delivery service, called MercadoEnvios; asset management, called MercadoFondo; and a consumer lending business, called MercadoCredito.
MercadoLibre's competitive advantages are evident in its rapid growth, increasing profits, and the fact that it has withstood competition from giants such as Amazon and Limited SeaShopee's.
Looking forward, MercadoLibre still has many white space opportunities in Latin America as it penetrates core markets including Brazil, Mexico, and Argentina and expands elsewhere in the region.
The stock now has a market cap of $87.3 billion, making it a reasonable candidate to overtake Palantir over the next five years at half Palantir's current valuation. MercadoLibre is also much cheaper, at a price-to-sales ratio of just 5, and a price-to-earnings ratio of 61.
Given that its revenue jumped 35% in the third quarter, the stock has a lot of room to grow if it can maintain its momentum over the next five years.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman He has positions at Amazon, Axon Enterprise, and MercadoLibre. The Motley Fool has positions and recommends Amazon, Axon Enterprise, MercadoLibre, Palantir Technologies, and Sea Limited. The Motley Fool has a disclosure policy.
