Data-mining and analytics group Palantir Technologies (NYSE:PLTR) has been on the radar of growth investors. Following its market debut on Sept, 30, the shares hit a record high of $45 on Jan. 27. PLTR stock is currently at $22.50, around 50% off its peak.
Understandably, investors have been concerned with the recent rapid decline in price. Many believe the company has visionary leadership and powerful secular growth trends. Its proprietary technology for predictive analytics has brought growth in customer numbers.
Yet, the price action has been volatile. If you are a buy-and-hold investor, you could consider the current levels as an opportunity to go long.
Here’s why.
PLTR Stock Is A Growth Name
Denver-based Palantir was founded in 2003 by Peter Thiel, the co-founder of PayPal (NASDAQ:PYPL), to provide solutions for managing and securing data at massive scales. The company builds and deploys two main software platforms.
The first one is Palantir Gotham, which focuses on the government intelligence and defense agencies. The other is Palantir Foundry, which is used by leading companies from energy, transportation, financial services and health care sectors. Additionally, it offers Palantir Apollo, the continuous delivery software that powers SaaS platforms, Foundry and Gotham, in the public cloud.
Since its early days, Palantir has been considered a controversial company, mainly due to agreements initially made with government agencies such as the CIA. Yet, its recent contracts showed the company could easily expand into broader commercial markets. In the last four quarters, Palantir increased the number of its customers from 125 to 149.
The group had previously made data management agreements with several big companies such as Scuderia Ferrari, Airbus (OTCMKTS:EADSY), Rio Tinto (NYSE:RIO), and IBM (NYSE:IBM). Most recently Foundry for Builders was launched to support the growth of early-stage companies including startups Chapter, Hence AI, Adyton and Gecko Robotics. Moreover, it began accepting Bitcoin (CCC:BTC-USD) as payment and may also invest in the cryptocurrency.
Management also highlights it offers services for humanitarian purposes, such as the World Food Programme and combating Covid-19. In late 2020 and early 2021, Palantir cooperated with the Greek government and England’s National Health Service to improve their response to the pandemic. In June, PLTR was named by Amazon (NASDAQ:AMZN) as a 2021 Global AWS Partner Network (APN) Public Sector Partner Award winner in its work to fight against Covid-19.
How Recent Earnings Came
According to Q1 2021 financials of Palantir, which were released on May 11, revenues totaled $341 million, growing 49% year-over-year. The net loss was $123.5 million compared to a loss of $54.3 million a year ago. Adjusted diluted EPS was 4 cents versus a loss per share of 1 cent same quarter prior year. Cash flow from operations stood at $117 million and adjusted free cash flow was $151 million, up 44%.
Palantir has proven its sustainability and potential for higher growth. Only in the last couple of months, PLTR won a $111 million contract from the U.S. Special Operations Command. It also expanded its Space Force partnership with a new $32.5 million contract and made a $7.4 million contract renewal with the U.S. Centers for Disease Control and Prevention.
The Federal Aviation Administration contracted the company for support in aircraft certification and continued operational safety. Finally, management teamed up with DataRobot to develop AI demand forecasting solutions.
So far this year, PLTR shares are down 4%. The company’s consensus forward price-earnings (P/E) ratio is 166x. The stock trades at 33x its current sales. And its price-to-book (P/B) ratio stands at 22x. These ratios imply a rich valuation. Currently, 12-month price targets for the shares range from $17 to $30.
Bottom Line on PLTR Stock
PLTR is a growth stock and the recent financials showed it could soon turn into a profitable company. Management will release second quarter financial results on Aug. 10. Wall Street will want to see growth, both in revenue and number of customers.
If Palantir is on right track, then investors are likely to hit the “buy” button. But if the Street has concerns over the metrics, then it could be another volatile August for PLTR stock. Long-term investors could consider buying the dips, especially toward $20, and remain long-term regardless of daily fluctuations.
Finally, investors who want to hedge their bets could also consider an exchange-traded fund that holds PLTR stock in their portfolio. Examples include the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the FlexShares Morningstar US Market Factors Tilt Index Fund (CBOE:TILT), the Renaissance IPO ETF (NYSEARCA:IPO), the VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ), and the Vanguard Growth ETF (NYSEARCA:VUG).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
