After a bruising spring for Palantir (NYSE:PLTR) stock, the shares look to finally be on the mend, giving investors hope that a breakout is on the horizon for the name.
The secretive software company that has been linked to government intelligence contracts went public on the New York Stock Exchange last September in an inauspicious market debut. The Denver Colorado-based company that bills itself as a “big-data analytics specialist” saw its share price close at $9.50 on its first trading day. The stock then sat idle for two months, refusing to budge until the end of November when it took off and rallied 374% to a an all-time high of $45 per share.
Part of the rally can be attributed to retail traders on the r/WallStreetBets forum who targeted PLTR stock, along with other so-called “meme stocks,” for big gains.
After peaking in early February, Palantir’s share price declined 60% before reaching a bottom at $18.37 on May 13. Since then, the company’s share price has stabilized and moved nearly 40% higher, closing on Friday at $25.37.
A number of investors on both Wall Street and Main Street are now trying to determine if Palantir’s fundamentals justify a further breakout for the stock or if it will again slide.
Palantir’s Earnings and Its Reliance on Government
Founded in 2003 and named after a reference in The Lord of the Rings books, Palantir remains unprofitable despite being in business for nearly 20 years.
Analysts cringed when the company reported a first-quarter net loss of $123 million, or 7 cents per share, compared with a loss of $54 million or 10 cents per share, a year earlier. Palantir’s Q1 revenue did improve, rising nearly 50% to $341 million from $229 million during the same time a year earlier. Additionally, its sales came in above analysts’ average outlook of $332 million. Palantir says it expects annual revenue growth of 30% or more between this year and 2025.
Palantir CEO Alex Karp has said that the company continues to focus on obtaining a higher percentage of its sales from corporate clients. However, while Palantir added 11 new commercial customers in Q1, the company still obtained 54% of its revenue from government contracts, including counterterrorism deals with U.S. intelligence agencies and the Department of Defense.
That government work has drawn criticism from some people who claim that Palantir’s software is used to spy on American citizens. The company denies the charge.
Betting on Bitcoin
Palantir also made headlines last month when it said that it was preparing to accept Bitcoin (CCC:BTC-USD) as a form of payment from its customers. The company added that it was also considering investing in a variety of cryptocurrencies.
Of course, companies ranging from Tesla (NASDAQ:TSLA) to Amazon’s (NASDAQ:AMZN) Whole Foods are also experimenting with accepting cryptocurrency payments. But Palantir’s interest in digital coins drew particular attention because it is not a retailer and is involved in sensitive work for the U.S. government.
Some saw Palantir’s comments about cryptocurrencies as pandering to the individual retail investors who form much of the company’s shareholder base. However, the leadership of Palantir, whose software provides customers with an analytical view of their operations, insist that it’s serious about exploring the benefits of digital assets.
Time will tell if Palantir ends up accepting Bitcoin and making strategic investments in cryptocurrencies, which remain extremely volatile.
Palantir’s Track Record and Market Opportunity
Despite the drama around Palantir’s work for intelligence agencies and its potential investments in cryptocurrencies, the company is run by a group of Silicon Valley veterans who have a strong track record of success.
Palantir co-founder Peter Thiel also helped to create fintech giant PayPal (NASDAQ:PYPL) and was an early investor in social media juggernaut Facebook (NASDAQ:FB). Current Palantir CEO Alex Karp, who was a classmate of Peter Thiel’s at Stanford University, ran a successful investment firm called Caedmon Group before founding Palantir.
Additionally, Palantir thinks that it has a big opportunity, as the company estimates its addressable market at $120 billion. Palantir continues to promote any new contracts it secures, including a $32.5 million deal to support the U.S. Space Force and the U.S. Air Force’s missions with cloud-based data services, and the renewal of a contract with the U.S. Army that is worth about $115 million.
The company has proven that it is adept at growing its revenues by landing new contracts.
Take a Small Position in PLTR Stock
Trading at just over $25 per share, Palantir’s stock remains affordable for individual investors , and it can climb further in the future.
Readers, however, should be aware that analysts have a median price target on PLTR stock of $20 per share, about 20% below its current price. In the long-term, though, Palantir has a lot going for it.
If the company can resolve its identity crisis, lessen its reliance on government contracts, and turn a profit, then those who buy PLTR stock now should be rewarded down the road.
However, in the near-term PLTR stock remains a bit of a wild card. The volatility of its stock and the threat of being targeted again by the r/WallStreetBets crowd have cast a shadow over the stock.
As a result, investors looking to buy its shares should start with a small position. If Palantir’s share price breaks meaningfully above its current level, then they should buy more shares.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
