Both PayPal (NASDAQ: PYPL) and Palantir (NYSE: PLTR) shares were big fallers yesterday. Indeed, the PayPal share price had fallen around 12% as I wrote, while the Palantir share price fell around 10%. This was because both posted trading updates that underwhelmed investors. Yet PayPal shares are still up 10% over the last year and Palantir is up 3% in the same period. So after these falls, is it now the time for me to buy either of these US growth stocks?
PayPal: disappointing forward guidance
The PayPal third-quarter trading update was by no means awful. Indeed, the company’s growth continued, and net revenues of $6.18bn were 13% higher than last year. The group also added 13.3m net new active accounts, ending the quarter with 416m active accounts overall. Although revenue was slightly lower than analysts were expecting, the growth rate was still strong. Net income also increased 7%, ahead of expectations.
Nonetheless, it was the forward guidance that spooked investors. In the fourth quarter, the company expects revenues of around $6.9bn, but analysts had been expecting it to be around $7.2bn. This underperformance for the next quarter is partly due to the end of stimulus payments and ongoing global supply chain disruptions. These are both risks that require consideration, and reasons why the PayPal share price fell so significantly.
Even so, I’m still tempted to buy on the dip. For one, PayPal announced that its subsidiary, Venmo, is launching a partnership with Amazon through which shoppers can use Venmo as a checkout option on the site. This could help boost profits. As such, while the tech company trades on a lofty price-to-earnings ratio of over 40, there does still seem upside potential. If the shares fall further, I may buy.
Palantir: a growth stock beating expectations
Palantir was an odd case because the company, which makes software and analytics tools for the government and other companies, beat expectations. Despite this, the shares still fell around 10%.
In the Q3 trading update, revenue was able to reach $392m, which was a 36% increase from last year. While this was a slightly slower growth rate than the 49% recorded in the two previous quarters, it was still good, which demonstrates the potential of this growth stock. The company also managed to add 34 net new customers.
So, why did the stock fall? Well, there are a few potential reasons. First, the company said that its operating margin will shrink in the fourth quarter and will be 22%, rather than the 24% analysts were expecting. This shows that the firm’s operating efficiency is starting to worsen. This is a risk that requires consideration.
Further, Palantir shares are very expensive. In fact, using its expected revenues for 2022, the shares trade on a price-to-sales ratio of around 30. This is three times higher than PayPal. Therefore, while there’s clearly a ton of potential with Palantir shares, its priced too highly for me. This is a stock I’m watching from the sidelines.
Stuart Blair has no positions in any of the shares mentioned. The Motley Fool UK has recommended PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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