Palantir (NYSE:PLTR), which Peter Thiel co-founded, is down 7.8% in the last month. It’s a strange place to be for PLTR stock, especially since it outperformed the S&P 500 by 128.0% and its sector by 131.7% in the past year. You can chalk that up to several reasons.
First, tech stocks and electric vehicle plays are giving up gains in favor of those in the energy sector. Second, Palantir’s connection to the U.S. security establishment has not paid dividends in the form of new mega-deals thus far.
Finally, the controversial data-mining firm copped a few blows in the U.K., where a lawsuit forced the British government to commit not to extending Palantir’s contract beyond its work with the National Health Service (NHS).
All things considered, it hasn’t been the best of times for PLTR. However, readers of this space will know that I am very bullish on the stock. Primarily because the company deals in the most valuable commodity in the 21st century, data.
I also like that it’s a defense contractor with strong links to America’s national security institutions. PLTR is a rock-solid investment that will increasingly become recession-proof.
Hence, I am a big advocate of picking up more PLTR stock whenever the opportunity presents itself.
PLTR Stock and the Biden Administration
During the campaign, President Trump repeatedly attacked then-candidate Joe Biden for being soft on China. During his four years in office, former President Donald Trump conducted a battle with the Xi Jinping administration on trade.
However, if the initial few days are any indicator, Biden takes U.S. national security very seriously. He recently ordered an airstrike targeting Iran-backed militias in Syria, and his national security team has several names that are decidedly hawkish.
One of them is Avril Haines, who currently serves as the Director of National Intelligence. She previously served as Deputy Director of the CIA in the Obama administration. More interestingly, she is a former consultant for Palantir.
Investors felt the big data analytics firm would land several high-profile contracts during the administration’s early days. So far, there isn’t any news on that end, which helps the bearish narrative.
Whether the Haines connection will pay dividends in the future is an unknown. However, the new administration has made it clear that it wants to cut back on military costs and create a sleek, efficient military machine.
For that, it will need a company like Palantir, which has a proven track record and long association with the defense establishment.
Enviable Business Model
Palantir operates an asset-light model focused on analyzing large data sets to solve complex problems. For full-year 2020, the company reported a 47% year-over-year increase in revenues.
The 2020 fourth-quarter revenues came in at $322 million, up 40% year-over-year. Looking ahead, the analytics firm forecasts 45% year-over-year growth in the first quarter of 2021.
It closed the year with two massive deals. First, the U.S. Army’s Program Executive Office for Enterprise Information Systems gave the green light to complete the second year of its partnership under the Army Vantage program, which will give the company $113.8 million for the year.
This is part of the overall $458 million production agreement between the U.S. Army and Palantir last year.
The other major contract is a $31.5 million two-year deal with the U.K.’s NHS to provide a software platform that will help personnel understand how the novel coronavirus pandemic is spreading and divide health and care resources efficiently among hot spots.
Campaigners at the political website Open Democracy recently sued the British government on its relationship with Palantir. Although it can be a warning sign for some investors, it really shouldn’t stop you from going along with this one. Ultimately, there will be civil rights groups everywhere that may take objection to what Palantir is doing.
Last year, New York Rep. Alexandria Ocasio-Cortez wrote a letter to the Securities and Exchange Commission flagging material risks for future investors and national security issues regarding the controversial data miner.
Other national commentators have also expressed concerns regarding the company. However, that has not stopped PLTR stock from surging exponentially after debuting because the defense sector is a recession-proof industry.
Valuation Has Become Very Enticing
Despite a robust operating profile and excellent prospects, PLTR stock is still down a little more than 1% year-to-date. To me, that screams a buying opportunity. An asset-light business boasting a gross margin of 64.1%? Sign me up. The fact that shares are trading at 20.9 times price-to-sales is icing on the cake for me.
Analyst sentiment is also decidedly bullish.
TipRanks tracks seven analysts offering price estimates on PLTR. The 12-month average price target is $25.83, more than 10% higher than it trades now.
Refinitiv data shows consensus estimates call for revenues to increase 35.1% and 77.2% in fiscal 2021 and 2022. It makes sense, considering the excellent run it has been on for a while, barring the last few months.
Palantir Is a Long-Term Investment
I fully understand the skepticism surrounding PLTR stock. People are afraid that the company may see a lot of litigation in the future, which could eat away returns.
I believe that this is highly unlikely. As the adage goes, never bet against the house. These defense establishments have the blessing of whoever in power.
Although both parties can disagree on the methods, national defense is a bipartisan issue. Making the military more efficient and streamlined is an ambition that everyone wants to pursue. So, PLTR stock becomes one of the safest investments out there. Whenever the price dips, I would want to buy more of this one.
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.