If you're looking for stocks that can put up market-beating gains, one of the best places to look is a list of stocks that are already outperforming. That's because top-performing stocks can continue reaching new heights without ever falling back to a price that value investors find acceptable.
Here's a look at some of the top-performing growth stocks of 2023 to see if they're likely to keep on climbing.
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Palantir
Shares of Palantir (PLTR 3.73%) are up an amazing 210% this year thanks to a bottom line that reached positive territory for the second consecutive quarter. Investors amped up about artificial intelligence (AI) are also flocking toward the stock.
In a nutshell, Palantir helps organizations analyze data from sources that typically don't share information. For example, its biggest client, the U.S. government, hires Palantir to mine data collected from government agencies, such as the FBI, and CIA, to predict imminent terrorist attacks.
Enterprise customers in the private sector are just as eager to analyze compartmented data as the government. The number of commercial customers at the end of March soared 41% year over year. Just a few years ago, Palantir was chided for relying heavily on government contacts. Now commercial customers are responsible for a majority of top-line revenue.
New enterprise customers were beating a path to Palantir's door before generative AI applications such as ChatGPT set the world on fire. Now the company's AI platform is driving unprecedented demand, according to management.
Palantir is growing fast, but it needs to continue at a rapid pace for at least several more years or investors who buy at recent prices could face heavy losses. First-quarter earnings came in at just $0.01 per share, and the stock trades for the nosebleed-inducing valuation of 18.9 times trailing sales. If you're going to take a chance on this stock, make sure it's a small part of a diversified portfolio.
Lemonade
Shares of Lemonade (LMND 1.64%) have climbed more than 100% from a low point they hit this April. It's easy to understand why investors are excited. The next-generation insurer's business has been outpacing the stodgy old companies it competes with.
In May, we learned that total customers soared 23% year over year to 1.9 million at the end of March, and they're increasingly engaged. The average premium received rose 26% year over year to $352 per customer.
Lemonade isn't just outperforming its largest peers when it comes to generating new business. It's outearning its peers by a wide margin. Allstate reported a $2.9 billion underwriting loss last year, but Lemonade's underwriting chops are improving. The digital insurer reported a gross-loss ratio that has fallen from 94% in the third quarter of last year to 87% in the first quarter this year.
Lemonade narrowed its Q1 loss to $66 million from $75 million a year ago. With heaps of new customers migrating to its digital-first platform, earnings could be around the corner.
Upstart
Shares of Upstart (UPST 2.76%) have risen over 400% since May 2. Heaps of traders trying to bet against the stock have had to buy it on the way up, a situation called a short squeeze.
This fintech employs AI to assess individual credit risk. By incorporating more data points than the three-digit Fair Issac FICO scores banks typically rely on, Upstart helps banks find potential borrowers that they would otherwise have ignored.
Upstart had earnings that grew steadily in 2021. Unfortunately, interest-rate raises meant to tighten America's money supply are working against Upstart. In Q1, loan originations made through the Upstart platform fell 78% year over year. Instead of the modest earnings Upstart reported when banks and credit unions were eager to engage its platform, the company lost $132 million in Q1 this year.
The Federal Reserve dialed back its pace of interest-rate raises, but this doesn't mean Upstart's lending partners will be eager to write lots of new loans again. Shares of Upstart are trading for 8.5 times trailing revenue, and there's no telling when it will have positive earnings again.
A continued short squeeze could drive Upstart stock higher. That said, I'm not about to add to my position at its present valuation. Of course, I'll gladly reconsider if its bottom line approaches positive territory again.
