Palantir (NYSE:PLTR), the big data and analytics software company founded by Peter Thiel, is one of the most polarizing stocks out there. Founded in 2003 with capital from investors, including the CIA, it offers software solutions to analyze data. However, PLTR stock isn’t quite as simple and straightforward as that.
Palantir provides, for example, mechanisms that the Immigration and Customs Enforcement (ICE) uses to conduct its deportation raids. Hence, you can understand why ethical investors have issues with PLTR stock.
As InvestorPlace‘s Alex Sirois articulated in his recent piece, there is merit to treating PLTR stock as a contrarian play. And this is particularly true if you value growth prospects. Palantir estimates its total addressable market (TAM) as roughly $119 billion over commercial and government sectors.
The company has guided to full-year revenue from of $1.05 billion to $1.06 billion this year, not too shabby considering the market’s size.
Ultimately, though, the decision to invest in PLTR stock will have to be your own. If you are the kind of investor that makes unemotional decisions based on pure numbers, then this company should be right up your alley. However, if your social values inform your decision-making process, then it’s understandable why you would want to stay away.
PLTR Stock Has Excellent Prospects
Let’s get one thing out of the way before we proceed. Palantir doesn’t totally rely on government agencies for its revenue. It has a decent number of commercial clients, but, yes, the U.S. military dominates its revenue mix. And recent developments point to that fact continuing for the foreseeable future.
But how did the firm get here? Well, it has to do with two things: corporate vision and a court judgment in 2018.
According to that ruling, the U.S. federal government agencies, including U.S. military units, had to consider external solutions before developing their own in-house solutions. This flipped the script, especially for military agencies that focused on in-house development.
The decision proved to be a significant tailwind for the company since revenue from military contracts skyrocketed. Palantir earned $78.8 million of revenue from the Pentagon in the first half of the year. That handily eclipses the year-ago total revenue figures. The company has also signed a two-year contract for $91.2 million with the U.S. Army Research Lab. The contract will allow the U.S. to build out its capabilities in artificial intelligence and machine learning.
Covid-19 Tailwinds
Not only is the pandemic a massive public health problem, but its also grown to be a significant data science issue. If we have more data and better models, we can provide better information to clinicians and researchers trying to come up with a solution to this public health crisis. And that is where Palantir is helping.
The U.S. Department of Health and Human Services is reportedly tapping the company for its Tiberius software, which will help the company track the manufacture of Covid-19 vaccines. The product will build on its management tools for corporate clients that address supply chain issues and bottlenecks. The software will help federal health officials track how vaccines are being manufactured as well as distributed.
As companies like Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and Johnson & Johnson (NYSE:JNJ) race to get a commercial vaccine to the markets, logistics are slowly coming to the fore in the debate. Palantir will help government officials decide where and how to allot the first vaccines once they become available.
Metrics Indicate the Stock Remains a Steal
Considering the strong growth prospects, I find it surprising PLTR stock is trading at 16.7x forward price-sales. Post-IPO, Palantir has a current market cap of $17.62 billion, which is paltry when you look at its client list and the fact that it’s guiding for sales growth of 41% to 43% this year. I think it boils down to the negativity surrounding the stock and not the underlying fundamentals.
I understand why people want to stay away from this stock. If it goes against the moral values that you hold near and dear, then there is no point in allocating capital to this company.
However, I see an opportunity to gain greater exposure to a business with solid revenue lines, and it’s still in its nascent stage in terms of valuation. You wouldn’t want to be caught napping when this stock triples in the near term.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
