Shares of Palantir Technologies (NYSE:PLTR) have shed over 27% of their value since Feb. 12 when I last wrote about the artificial intelligence company. You might be wondering if this is a good time to buy PLTR stock.
As I mentioned in my previous article, it’s not a simple call. There are a lot of reasons to be optimistic about Palantir and a few other reasons to be worried. Overall, I think it is worth a spot on your growth stock watchlist thanks to the growth potential that its enterprise push promises.
Before going into further detail on Palantir’s enterprise push, it’s worth mentioning that the recent selloff isn’t down to any fundamental-shifting event on the AI company’s part. The primary driving factor has been investors’ move away from growth stocks (especially the so-called Covid economy stocks) to value stocks. The chart below shows the price performance of a few Covid growth stocks since Feb. 12.
Inside Palantir’s Plans to Expand Its Enterprise Clientele
Palantir started in 2004 with an initial focus on selling a fraud-detection tool that finds relationships between disparate data sets. The company attracted the interest of government agencies and would onboard government clients, including the Federal Bureau of Investigation, U.S. Special Forces and international intelligence agencies, according to a 2018 Wall Street Journal report.
The company’s government business has grown stronger, accounting for more than half of its revenue in 2020.
Palantir has made no secret of its intention to diversify its customer base away from a reliance on governments to include enterprise clients. But it appeared to have found little luck until recently. The WSJ report cited above touched on some of the company’s unsuccessful shots at winning more corporate customers. Several factors typically contribute to these outcomes. However, the overarching feeling is that Palantir wasn’t professional enough for corporate clients.
With pressure mounting on the company’s leadership for profitability, Palantir appears to be turning things around in its commercial segment. The company’s U.S. commercial segment witnessed over 100% revenue growth in 2020, which the company attributed to its investment in its direct sales force and channel partnerships.
Palantir Demo Events
The company has also started hosting demo events (think trade shows for software), which I think are very important for winning more corporate clients. Here’s why.
Palantir’s solutions are somewhat esoteric in that its potential customers may be unaware of the usefulness to their businesses until they see demos. During the company’s Q4 earnings call, Chief Operating Officer Shyam Sankar said the following about the company’s first demo day event held on Jan. 26:
“Demo Day really helped customers understand if they had a problem that Palantir can solve, and it kept our, you know, growing salesforce pretty busy. But it really underscores the tremendous opportunity in front of us and how much we are at the beginning.”
The company now has plans to host a series of demo events dubbed Double Click, the first of which was held on April 14.
I expect the demo events to be crucial to Palantir’s push to win more commercial clients. Investors should look out for comments about this the next time the company hosts an earnings call.
“Demo Day was a hit with potential customers. We were very excited by the marked uptick in inbound inquiries. And these have led to some great generative conversations with prospective customers.”
Final Words on PLTR Stock
Indeed, much of Palantir’s future depends on the success of its drive to win new commercial clients. From a distance, it would seem like a typical situation of ifs and maybes. It’s worth mentioning, though, that the company isn’t starting from zero. It’s already one of the leading companies in its market. Market intelligence firm IDC ranks Palantir as the third-largest company by revenue in the AI application development and deployment space.
Moreover, the company has already successfully locked some notable commercial partnerships this year. It has inked new partnerships with firms including automotive supply giant Faurecia, Japanese information and communications-equipment giant Fujitsu and IBM (NYSE:IBM). Having these sorts of names as customers inspires confidence.
Regarding numbers, PLTR stock still looks overvalued, despite the recent selloff. It sports a price-to-sales (P/S) ratio of 21. That’s expensive when compared to other government plays such as Raytheon (NYSE:RTX) and Northrop Grumman (NYSE:NOC), which sport P/S ratios of 2.1 and 1.6, respectively.
On the date of publication, Craig Adeyanju did not have (either directly or indirectly) any positions in the securities mentioned in this article.