It’s been a little over a month since Palantir Technologies (NYSE:PLTR) went public at $7.25 a share. Up almost 40% through Oct. 30, I’m left wondering if PLTR stock is the best bet amongst tech stocks trading around $10.
According to Finviz.com, there are 14 stocks within $5 of its Oct. 30 closing price of $10.13 and possessing a market capitalization greater than $2 billion.
Here are my two cents on Palantir (it’s hard to believe this is my first time writing about the company) and a possible candidate or two trading around $10 that might make a good long-term bet.
Why the Bulls Like PLTR Stock
As I said in the intro, I’ve never written about Palantir, although I was certainly aware of the company, given it was a leading candidate to go public over the past two years.
From an elevator pitch perspective, Palantir’s data analytics focus makes it an attractive tech play. Now, I’m saying this without looking at its prospectus or getting some opinions from my InvestorPlace colleagues.
Tom Taulli, Dana Blankenhorn, Matt McCall, and Josh Enomoto are four InvestorPlace contributors I look to for second opinions when it comes to tech. I’m surprised I haven’t seen Luke Lango’s name on a Palantir article. He’s big into tech as well. I’m sure his name will pop up soon enough.
In the meantime, I’ve digested all four contributors’ thoughts on the secretive company backed by Peter Thiel, who co-founded PayPal (NASDAQ:PYPL) and was an early Facebook (NASDAQ:FB) investor.
Tom Taulli recently suggested that Palantir’s Tiberius project to help with the rollout of a Covid-19 vaccine could lead to huge gains for PLTR stock. I think anything that can help us manage our way through this horrible pandemic is the kind of value-add investors will buy into.
On Matt McCall’s Oct. 27 video podcast MoneyLine, he provided viewers with his two cents on Palantir.
“They had $742 million in revenue last year. It’s looking by 2024 to go to $3 billion. So it’s bound to have some nice growth, but it’s already a $16 billion company,” McCall stated on MoneyLine.
“Next year it’s looking for about just over a billion so it’s 16 times sales next year… It probably will be slightly profitable in a couple of years. Not there yet.”
If push came to shove and McCall had to buy, hold, or sell, he did say he would buy at this point because of its use of artificial intelligence, machine learning, and data analytics, although he hasn’t for himself or his clients just yet.
You can view the section on Palantir around 22:38 of the Oct. 27 MoneyLine episode.
Why Others Don’t
Dana Blankenhorn stepped in with a negative spin on Palantir in early October, right around the time it went public. His take was a useful one for anyone considering a bet on the stock.
“The valuation of Palantir has been reduced slowly over several years. It was reportedly valued at $20.4 billion by Pitchbook in 2015 and was trading privately at $9.17 a share at the start of September. It seems that the more it was marketed, the less value it was seen to have,” Blankenhorn wrote Oct. 1.
“As an investor, that would concern me far more than the founders’ politics or their ties to the CIA. Palantir is selling an obsolete business and technology model into a fast-changing market. It may be an oracle, but I’d rather own salesforce.com (NYSE:CRM).”
In large part, I’ve been a fan of Salesforce because of chief executive officer Marc Benioff, who’s understanding of stakeholder capitalism makes him a great CEO to back for the long haul.
As I always like to say, you always have options, although you won’t be able to buy its stock for $10.
My last InvestorPlace go-to is Josh Enomoto, who wrote in October that Palantir could lose several revenue streams in the future that might do a number on PLTR stock.
“[T]he new normal could present a precarious business landscape. Yes, government revenue channels will likely increase in value. But what about mainstay commercial industries like the airliners? PLTR stock is exposed to the sector, which will surely play into its overall valuation,” Enomoto wrote on Oct. 19.
“Therefore, in some ways, PLTR is like an exchange-traded fund. Some components of Palantir will surely rise. Others risk not only a decline but a cratering.”
My Two Cents on Palantir and Possible Alternatives
I don’t think you can complain about the company’s growth over the past two years. In 2019, revenues grew 24.7% to $742.6 million from $595.4 million a year earlier. In the six months ended June 30, its revenues jumped 49.1%, almost double the growth rate for all of 2019.
Based on the fact it has a fairly stable level of operating expenses around $1 billion, a 25% year-over-year growth rate in sales over the next couple of years, as McCall stated, should get it to an operating profit for fiscal 2022.
Now, if it comes in around 40% growth for the entire 2020, it could get there by the end of December. It’s probably stretching things, but it gives you an idea of where the business is headed from an optimistic viewpoint.
Like McCall, if push came to shove, I’d probably say PLTR is a buy at $10 and change. However, I’d probably wait to see if you could buy some in single digits in the weeks ahead for margin of safety.
As for stocks trading within $5 of Palantir, my two best suggestions based on the 14 stocks available would be Ericsson (NYSE:ERIC) for its 5G ambitions and Velodyne Lidar (NASDAQ:VLDR) for the work it’s doing to advance autonomous driving. Keep in mind with VLDR that it’s unlikely to be EBITDA positive until 2022.
All three stocks have an appeal for different reasons.
Risk-averse investors should consider Ericsson. Those who believe in the future of autonomous driving have got to hitch their wagons to Velodyne, and if you think data analytics and AI are the bee’s knees, Palantir’s your pick.
Just remember, both Palantir and Velodyne don’t make money so govern yourself accordingly.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
