How to Invest in Palantir Technologies

Data-mining and analytics firm Palantir Technologies (NYSE:PLTR) stock has been on investors’ radar since making its public market debut in September 2002 at $10 a share. PLTR stock ran up to a high of $45 in late January during the meme-stock frenzy after gaining the attention of retail investors at Reddit.

Palantir Technologies (PLTR) headquarters
Source: Sundry Photography /

However, as is often the case with meme stocks, those gains didn’t last, and by mid-May, PLTR had traded back down to the $17 level. Now, the shares are shy of $25, trading around 36 times sales and 23 times book value.

Despite its lofty valuation, PLTR stock sees a lot of trading activity, as the 10-day average market volume is about 41 million. By comparison, the same metric for GameStop (NYSE:GME) stock stands at 1.5 million.

Wall Street’s interest in PLTR stock is also, in part, due to the group’s high level government contracts. For instance, as recent research led by Jonathan D. Moreno of the University of Pennsylvania highlights, the company has “close links to military intelligence and law enforcement agencies in the United States and Europe… [T]ech companies with access to the corridors of power are attempting to embed themselves into the postpandemic data world through high-end software packages…”

Today’s article looks at what might be in store for PLTR stock and how investors could still make money from Palantir Technologies.

PLTR Stock Q2 Results

In the second quarter, Palantir’s total revenue grew by 49% year-over-year (YOY) and hit $376 million. While the government still accounts for over 60% of Palantir’s revenue, commercial revenue is rising more rapidly than government revenue.

Its adjusted operating margin surged from 11% to 31%, implying that the company has considerable pricing power. While its GAAP net loss increased to $138.6 million, Palantir was profitable on an adjusted basis, posting adjusted earnings per share of 4 cents.

Palantir’s short-term growth prospects seem promising, given that the total remaining deal value increased 63% YOY to $3.4 billion in the second quarter.

Put another way, the value of existing contracts is rising faster than revenue, and hence the potential for strong future growth. Thanks to this solid momentum, the company has doubled its full-year adjusted free cash flow target to more than $300 million.

Adding PLTR Stock to Portfolios

Among six analysts polled PLTR stock has a “hold” rating. The shares have a 12-month median price target of $25, implying little change from current levels. Put another way, the stock is in a consolidation phase. The 12-month price range currently stands between $18 and $31.

Therefore, buy-and-hold investors could consider investing in PLTR stock if the price continues to decline, especially toward the $20 level. Such a pullback would improve the margin of safety.

Alternatively, you could consider buying an exchange-traded fund (ETF) that has Palantir stock as a holding. Examples include the ARK Innovation ETF (NYSEARCA:ARKK), the Defiance Next Gen Big Data ETF (NYSEARCA:BIGY), Renaissance IPO ETF (NYSEARCA:IPO), or the SoFi Social 50 ETF (NYSEARCA:SFYF).

Cash-Secured Put Options on Palantir Stock

Those readers who are experienced in options could also consider selling cash-secured put options. They would be appropriate if you are slightly bullish or neutral on Palantir stock at this time. The increase in implied volatility (IV) levels during the earnings season makes this strategy a potentially viable one to consider.

Selling cash-secured put options generates income as the seller receives a premium. As I write now, PLTR stock is around $24.70. The trade would be to sell the Nov. 19 expiry $24 puts. And the current option premium is $1.15. Therefore, the maximum return for the seller on the day of expiry would be $115, excluding trading commissions and costs.

If the put option is in the money (meaning the market price of Palantir Technologies stock is lower than the strike price of $24) any time before or at expiration on Nov. 19, this put option can be assigned. The seller would then be obligated to buy 100 shares of PLTR stock at the put option strike price of $24 (i.e., at a total of $2,400).

In that case, the trader ends up owning Palantir stock cheaper than the current level of around $24.70. The breakeven point for this example is the strike price ($24) less the option premium received ($1.15), i.e., $22.85. This is the price at which the seller would start to incur a loss.

On a final note, the calculation of the maximum loss assumes the put seller was assigned the option and purchased 100 shares of Palantir at the strike price of $24. Then, in theory, the stock could fall to zero.

If the put seller gets assigned the option, the maximum risk is similar to that of stock ownership but partially offset by the premium (of $115) received.

The Bottom Line on PLTR Stock

Palantir is a leading player in the data mining, analytics, and security space. It continues to grow operations. The company can potentially become one of the most crucial software companies of the next decade.

Palantir is well-positioned to benefit from the tremendous global  big data market opportunity, which could be well more than $200 billion over the next five years. Management predicts annualized revenue growth of at least 30% through 2025. If that trend plays out, PLTR stock looks like an attractive long-term investment despite its current lofty valuation.

On the date of publication, Tezcan Gecgil 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 Publishing Guidelines.

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.

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