Palantir (NYSE:PLTR) stock shows signs of slowing down after a massive rally post debut. Shares of the secretive and often-controversial big data company founded by Peter Thiel are down 6% in a month. And they have a 12-month price target of $15 per share, a 40% discount to the current price.
However, I remain bullish on PLTR stock due to a great many factors. Its multi-million contracts with the U.S. Army are worth their weight in gold. And the data analytics company is just getting started; it claims to have a total addressable $119 billion market.
Politics will remain an important part of Palantir’s future, but for now, federal contracts and bipartisan connections will reduce the anxiety in PLTR stockholders.
Even though shares seem overvalued, it’s not the right time to exit your position in PLTR stock. In fact, whenever there is a dip, I advocate adding more of it.
PLTR Stock Is as Secure as Fort Knox
Many consider Palantir’s close links with the U.S. security establishment as a source of concern. However, you shouldn’t. Having contracts with the U.S. Army is a source of strength rather than an Achilles heel. Any investor exposed to the consumer cyclical industry will tell you how devastating the novel coronavirus pandemic has had on their portfolio.
However, Palantir’s clientele is less sensitive to recessionary pressure than a business with a diversified commercial client set. In the third quarter, Palantir secured a $91 million contract with the U.S. Army and a $36 million deal with the National Institutes of Health (NIH). Separately, an aerospace customer renewed a $300 million contract.
These contracts build on Palantir’s strong history of institutional support. In March 2019, the Silicon Valley data analytics company won an up to $800 million contract with the U.S. Army over traditional defense contractor Raytheon Technologies (NYSE:RTX). Palantir will replace the Army’s outdated system, known as DCGS-A, with its comprehensive combat intelligence hardware and software suite.
At the same time, fundamentals are improving. Revenue in the third quarter increased by 52% year-over-year, beating analyst estimates by $10.05 million. And the company raised its full-year 2020 revenue guidance to a range of $1.07 billion to $1.072 billion, up 44% year-over-year. Gross margin is a very healthy 69%, highlighting the benefits of its asset-light model.
We’re Just Getting Started
In its S-1 filing, Palantir claimed a total addressable market of $119 billion. There is a sizeable chunk of market share still up for grabs.
The big-data software company recently signed a new two-year contract with the U.K.’s National Health Service, valued at up $31.6 million. The NHS will use Palantir’s Foundry platform to understand how Covid-19 spreads and identify risks to particular populations, increase health and care resources in emerging hot spots, and supply equipment to the facilities with the greatest need.
The contract builds on the company’s geographic presence in Europe, the Middle East, and increasingly South America. In June 2020, the big data company selected Tokyo-based insurance company Sompo Holdings as a strategic partner. Following its approximately $500 million investment in Palantir, it’s one of the analytics company’s biggest institutional shareholders.
Image Is Everything
Palantir has an image problem. Before the company went public, Rep. Alexandria Ocasio-Cortez wrote a letter to the U.S. Securities and Exchange Commission in mid-September asking the regulatory body to probe details that were “omitted” in the company’s disclosures. Illinois Rep. Jesús “Chuy” García co-authored the letter, which said, “Palantir reports several pieces of information about its company – and omits others – that we believe require further disclosure and examination, as they present material risks of which potential investors should be aware and national security concerns of which the public should be aware.”
All things considered, I am not surprised. The Democratic Party’s progressive wing has often raised concerns regarding its work with the U.S. Immigration and Customs Enforcement. Palantir has contracts with ICE worth up to $92 million.
The company can do little here. It has made no bones that it has deep connections with the intelligence community. Nevertheless, much like any top-notch defense contractor, it’s hiring lobbyists and spreading money around Washington.
Former National Security Advisor Michael Flynn and U.S. Rep. Duncan Hunter are major spokesmen for Palantir. Hunter, in particular, has been a champion for the product and its services.
The House Always Wins
PLTR stock will only go higher from here. Its growth is impressive, customers are massive institutions, and the total addressable market is huge. One should be mindful of the political risks that come with investing in PLTR stock. However, shares have massive long-term upside, and any issues in Washington can be smoothed out.
Remember, this company reportedly has a role in helping locate Osama bin Laden. National security is a bipartisan issue. No politician will want to make a move that could threaten the country’s effectiveness in military matters. We all agree that technology dominance has long been central to the American way of war. Any move that helps maintain this status quo will earn points from both sides of the aisle.
In conclusion, Palantir is moving into hallowed territory due to its customer set. Even if certain representatives have qualms regarding the product, Palantir has seen massive recent success with the Pentagon, the kind of relationships that take time to build.
Political issues can lead to short-term volatility, but if you’re in it for the long term, this one has legs to run.
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. Faizan 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.
