Data analytics company Palantir Technologies (NYSE:PLTR) is unique among tech businesses. PLTR stock traders should know that a sizable portion of the company’s revenues comes from federal agencies. This includes the U.S. Immigration and Customs Enforcement (ICE) and even the U.S. Central Intelligence Agency (CIA).
But first of all, don’t even think about buying the stock until you’ve read InvestorPlace contributor Thomas Yeung’s comprehensive guide to Palantir’s initial public offering (IPO). It’s pretty much required reading for prospective investors in this stock.
Next, you need to understand that this stock just started trading on the exchange on Sept. 30 via a direct listing. I’ll provide the finer details on that momentarily.
With a CIA and ICE connection, you’ve got to admit that you’re at least a little intrigued. Palantir harnesses the power of big data to facilitate decision-making. Now I’ll try to help you make a decision on whether you should buy PLTR or not.
A Closer Look at PLTR Stock
So, let’s talk about that direct listing. Call me a thief, but I’m going to borrow a quote that Yeung once sourced from Michael Lev-Ram:
“In a direct listing, a company doesn’t issue any new stock and therefore doesn’t raise additional money […] Instead, shareholders sell existing stock directly to the public, leaving investment banks to serve merely as advisers in the process and not underwriters.”
Direct listings can be prone to rapid insider selling, leading to a short-term post-listing price drop. That might have happened to PLTR stock on its first day — Palantir opened at $10, popped to $11.41, then later cratered down to $9 on Oct. 6.
Oddly, though, Palantir insiders alleged that they weren’t able to sell their PLTR shares due to trading platform issues. Again, this may or may not be related to the fact that Palantir opted to list directly.
But I’ll let you conclude for yourself whether or not there was funny business going on with the direct listing. All we know for sure is that on Oct. 27, PLTR stock surged 10% and nearly reached $11. For the time being, we can say with some confidence that the selling binge has subsided.
An Excellent Client to Have
Of course, not all of Palantir’s business comes from government agencies. In fact, 53% of the company’s revenues are derived from non-government entities (Page 88).
Still, federal contracts are a crucial part of PLTR’s history; the company actually started out in 2003 as a software developer for the CIA. It wasn’t until later that it began to take on private-sector clients.
Clearly then, government contracts are Palantir’s bread and butter. And we can surmise that there’s lots of bread and butter to be had, as the U.S. government’s been spending $90 billion annually on information technology.
Moreover, Deltek expects the federal demand for contractor-supplied big data to expand from $2.9 billion in fiscal year 2019 to $4.3 billion in 2024. Over this time span, the compound annual growth rate (CAGR) is projected to be an impressive 8.1%. That’s tremendous potential for PLTR stock’s growth.
An Aura of Mystery
Coming off as mysterious might be an asset in the entertainment business. When it comes to stock trading, however, transparency is generally preferred.
That being said, I don’t mind if I can’t find all of the granular details surrounding Palantir’s deals with the government. After all, the CIA is supposed to operate in secrecy, right?
However, through my digging I did find out that the CIA was among Palantir’s earliest investors — and was the company’s sole client for years. Obviously, Palantir and PLTR stock has come a long way since those early days.
But if you’re looking for something less secretive and more recent, you’ll be glad to know that Palantir recently secured a two-year, $91.2 million contract from the U.S. Army Research Laboratory “for research and development of artificial intelligence and machine learning capabilities.”
You’ve got to hand it to Palantir for snagging this one. The company was selected out of 999 bids. So, it’s probably safe to say that PLTR still has what it takes to earn the trust of capital-rich government entities.
It’s perfectly okay to add a touch of mystery and secrecy to your portfolio. With PLTR stock, you’ll get the excitement of a company connected to the CIA, but also a level of government assurance.
Some of the nation’s top agencies trust this company — maybe you should, too.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content -and crossed the occasional line -on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.