In a year when companies have gone public on little more than a kiss and a promise, it’s a little surprising that Palantir (NYSE:PLTR) stock is so polarizing. I suppose some investors can’t get past the company’s links to the Trump administration. The company’s co-found Peter Thiel has close ties to President Donald Trump. However, as I’ve previously noted the company’s CEO Alex Karp was also an ardent backer of Hillary Clinton.
My InvestorPlace colleague Larry Ramer suggests that the new administration will be a headwind to Palantir’s revenue. Again, I’m not so sure. Palantir was doing business with the two prior administrations so I’m not sure what a Biden administration really means.
Palantir is not a revenue giant compared to some of its peers, but the company’s finances suggest profit is not far away. And there appears to be a growth narrative in place for Palantir stock. Still the stock is extremely overvalued by any traditional metric.
With all that said, I believe the time is right for risk-tolerant buyers to jump in on Palantir stock.
When Has the Government Stopped Spending?
There is some concern that Palantir will struggle in a Biden administration. When I wrote about the company last month, I tried to put that to rest. While only being a publicly traded company since October, Palantir has been doing business with the U.S. government for 18 years, spanning multiple administrations.
I think it’s safe to say the era of big government is not over. Anymore, new administrations are about rearranging the deck chairs on the Titanic. Neither party is sincerely interested in cutting spending.
Yes, Palantir may have to find other segments of the U.S. government to draw from, but a $44 million dollar contract from the Food & Drug Administration (FDA) suggests it’s already starting to make that pivot.
What Are Customers Saying?
In a previous article I commented that Palantir’s products seemed to have a mixed record of success. But based on customer reviews on Gartner research that appears a little exaggerated.
The customers that like the company’s products really like them and customers that have concerns don’t hate the product. It sounds like many of the customers don’t object to the quality of the product but on more esoteric things such as ease of installation or perhaps the product being too robust for what they need.
In the end, this is mostly noise. The only thing that really matters is whether or not the company can continue to generate revenue. My guess is they will.
Palantir Stock is Overvalued
I can’t honestly say Palantir isn’t overvalued by traditional metrics. To be fair, it would have to be trading around its IPO price to be considered a fair value with competitors such as Booz Allen Hamilton (NYSE:BAH), SAIC (NYSE:SAIC), and CACI (NYSE:CACI). And each of these competitors have significantly more revenue than Palantir which is forecasting full-year 2020 revenue within a range of $1,070 billion to $1,072 billion.
However that revenue marks year-over-year (YOY) growth of 44%. And the company is forecasting 2021 YOY revenue growth to be around 30%. The company also has minimal debt (roughly $200 million) and about $1.8 billion in cash and cash equivalents.
On the other hand, as I mentioned above, Palantir is already close to being a profitable company and is acknowledging its need to behave like a publicly traded company.
It’s Okay to Speculate on Palantir
If you object to buying shares of Palantir because of the businesses they are involved in, that’s fine. Very few investors are completely agnostic to their convictions. But don’t make the businesses that they’re in, or even the potential decline of government revenue, be the reason to walk away from Palantir stock. Particularly when it’s trading at an overvalued, but inexpensive, price.
Any stock that trades in the immediate aftermath of its initial public offering is a risky proposition. And Palantir stock is no different. This is a particularly tricky time to invest in Palantir. First there is the upcoming transition to the Biden administration in January.
I’m not contradicting my opinion that Palantir will benefit no matter who occupies the White House. But it’s likely that no government contracts will be forthcoming until after the inauguration. And the company doesn’t report earnings again until February. That means regardless of what level of business the company will receive, nothing much will be happening in terms of breaking news.
Put it all together, now is a time to nibble on Palantir stock. If the stock drops a little, you may want to buy a little more. But it’s fair to wait to confirm the trend before making a large commitment.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
