Palantir Stock Could Be Ready to Rally Significantly From These Levels

Palantir (NYSE:PLTR) stock debuted on the markets trading at around $10.

A website promoting the Palantir (PLTR) Foundry solution.
Source: Spyro the Dragon / Shutterstock.com

After promptly doubling to around $20 and finally getting Reddit’s attention by February, PLTR stock is attracting more investors.

Despite trading at unfavorable valuations at close to 40 times sales, why does Palantir have many fans?

Palantir’s revenue has a long tail. It wins small contracts with government and health care organizations, and the dollar value of client renewals increases. This suggests that investors could continue bidding the stock higher to at least $30 next.

Palantir posted second-quarter results that pleased shareholders. Revenue grew by 49.1% year-over-year to $375.6 million. It reported an operating margin (adjusted) of 31%, easily beating the 23% guidance.

The closing of 62 deals worth $1 million or more and 21 deals at $10 million or more suggests that Palantir is on the verge of winning mega-deals next.

PLTR Stock Is Hanging Tough

Palantir offers a unique approach to logistics. For example, government authorities are installing Palantir Foundry. The product’s logistics incorporate shipment and sales operations. It provides software solutions for the spending on raw materials to the delivery to the end customer.

In Q2, Palantir signed new deals with the U.S. Army, Air Force, and Coast Guard. This included a 2 year, $100 million contract with U.S. Special Operations Command.

In July, the company participated in the U.S. Northern Command’s third Global Information Dominance Experiment. It demonstrated its software driving applied AI decision-making under real-world scenarios. This revolutionized Northcom’s ability to process data, outpacing adversaries.

In July, Palantir announced a $31 million Tiberius contract expansion with the Department of Health and Human Services (HHS). This is up from $17 million.

Palantir is a critical player in the fight against Covid-19.

“As new variants emerge and pose a renewed risk to public health in the United States and around the world, we are humbled to have earned the confidence of HHS once again to help support its lifesaving work,” said Akash Jain, Palantir’s President of the U.S. government arm.

Chief Operating Officer Shyam Sankar said that IT solutions that failed to help work through the 18-month backlog in the supply chain should look at the Palantir products.

“Years of investing my mindless inefficiency has resulted in enormous fragility,” The COO said on the conference call. “We are the resilient operating system for the future champion.”

Previously, Palantir worked with Sanofi and Merck to support related operational work in disease research.

Partnerships and Fair Value

Palantir’s strategic partnership program yielded 7 out of 20 new commercial customers. It will continue to foster the investment.

For example, Edge AI will keep evolving, increasing the value of the partnership. Data integration among the systems will accelerate and grow. With the European Union Bank, Palantir will deploy solutions related to the anti-money laundering workflow.

Palantir scores poorly on the key metrics of valuation and quality. This is due to the company still being in the early phases of accelerated revenue growth. Even though it scored contract wins worth $100 million, it may only report a fraction of that revenue each quarter.

Palantir quant score
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In the chart, Palantir has an overall rating of 25/100. Investors could buy established software stocks for better value.

The general trade-off in buying a Microsoft (NASDAQ:MSFT) over Palantir stock is slower growth.

On Wall Street, most analysts rate PLTR shares as a “strong sell.” This is a safe call.

The Nasdaq has not falleb into correction territory for a very long time. The mere hint of an interest rate hike or a panic on valuation would send technology stocks lower. Palantir is not exempt from a stock market correction.

Your Takeaway

Palantir is a fan favorite. Investors love the technology and the customer base. Governments are flush with a large spending budget and implementing advanced IT solutions.

Palantir’s platform offers innovative workflow tools that are unparalleled in the industry.

After building an uptrend in the last few months, Palantir’s price-to-sales ratio may expand and the stock could trade at well above $30.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.


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