Palantir Technologies (NYSE:PLTR) stock is the gift that keeps on giving. The firm’s revenue growth is exceptional, and the company’s contracts keep piling up. Any concerns regarding slowing momentum were eased by the firm’s second-quarter earnings report, which once again affirmed it as a force to be reckoned with.
For investors, only one question remains: when to buy PLTR stock. Palantir’s shares have been done well since it released its Q2 earnings. As of Aug. 20, its momentum oscillators were trending higher, and its Moving Average Convergence Divergence (MACD) was bullish.
With the stock trading with a price-sales ratio of 36.9, however, the case can be made that the shares are becoming overvalued.
Nevertheless, if you have purchased PLTR stock, it’s better to hold onto the shares. Investors should buy the stock on weakness, since the company’s growth will only accelerate going forward.
Q2 Earnings Were Another Feather in Palantir’s Cap
Palantir’s Q2 revenue soared 49% from the same period a year earlier, handily outpacing Wall Street’s average outlook of $352.3 million. The firm’s earnings per share, excluding certain items, was 4 cents, in-line with analysts’ mean estimate.
Palantir expects Q3 revenue of $385 million; analysts, on average had forecast sales of $376 million before the firm unveiled its earnings. Its 2021 free cash flow, excluding certain items, is likely to exceed $300 million, up from more than $150 million in 2020. Most astoundingly, the data analytics company expects its annual revenue growth to be 30% or higher through 2025.
Palantir added 20 new customers in Q2, with the average revenue from its top 20 customers increasing by 8.3% versus Q1. The company is trying to aggressively expand into sectors beyond the government by attracting more commercial clients.
Co-founded in 2003 by tech investors Peter Thiel and Joe Lonsdale, CEO Alex Karp and others, the company has faced criticism from members of Congress due to its close association with the Defense Department and the intelligence community. Therefore, Palantir is doing all that it can to increase the amount of sales it obtains from its commercial clients.
Palantir’s U.S. commercial revenue surged 90% year-over-year in Q2, improving from 72% YOY growth in Q1. Its commercial customer count jumped 32% in Q2 versus Q1. According to Kevin Kawasaki, Palantir’s head of business development, the company is on track to more than double its commercial customer base by the end of the year.
Palantir also inked a partnership with DataRobot in Q2. With the alliance, the companies will focus on helping their customers forecast demand. Palantir also launched Foundry for Builders, targeted startups, and is swiftly improving and growing the applications of its Apollo for Edge AI technology.
Areas of Concern
Palantir’s recent earnings confirmed that it is doing a great job of growing its customer base and increasing its revenues. However, there were two areas of concern worth highlighting.
The firm’s international commercial revenue jumped just 28% YOY. That means that Palantir will continue to rely heavily on U.S. government contracts. While these deals provide robust recurring revenues, the firm’s management has made it clear that it wants to diversify, and it is aggressively pursuing this strategy. In Q1, the company added nearly 50 new sales personnel, and in Q2, it increased its sales team by an additional 60 people.
Another area of disappointment is stock-based compensation, which increased meaningfully in Q2. While it is important to reward management and retain top talent, the firm has to generate more impressive bottom-line growth.
Wait for a Dip Before Buying More PLTR Stock
I can’t say enough good things about Palantir. It’s an asset-light data analytics company with deep ties to the defense establishment. Its business model helps it exploit new revenue opportunities faster than more mature and established firms. Every quarter, the company manages to beat expectations, aggressively adding both government and commercial clients.
The only thing to watch out for is the price of the stock. Since making its debut last September, PLTR stock has had a wild ride. Peaks and valleys became a feature of its price chart due to the explosive interest of retail investors in the name.
So the best price at which to buy the shares is debatable But on a major pullback, PLTR stock will become a particularly enticing prospect.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in 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. Faizan does not directly own the securities mentioned above.