Palantir (NYSE:PLTR) stock has been very volatile due to some key developments. First, there are rumors that Immigration and Customs Enforcement (ICE) could terminate its contract with the data analytics company. At the other end of the spectrum, Palantir was able to secure a new contract with the Department of Veteran Affairs for $90 million.
Palantir’s controversial platform, FALCON, has sparked anger and protests. The system, which is used by ICE to track and deport immigrants, was developed by Palantir with input from America’s Customs & Border Protection agency. FALCON builds upon previous research by Palantir and CBP on analyzing risk factors associated with visa overstays, fraudulent travel documents, and other illegal actions related to immigration.
Nevertheless, Palantir continues to secure a lot of business from the government, so a potential loss of the ICE contract will not hurt it that much. For example, the company recently clinched an $823 million contract with the U.S Army to develop a data collection program.
The only problem with PLTR stock is overvaluation. Due to its triple-digit-percentage gains since debuting in September last year, its potential gains are limited. However, if its upcoming third-quarter earnings disappoint its investors like its Q2 earnings did, the shares will reach an attractive entry point.
Astounding Price Momentum
Over the last year, PLTR stock has handsomely rewarded its owners. Almost every month, the company signs new contracts with either government agencies or private firms. And although Palantir receives a fair share of criticism, it has not been involved in any substantive litigation. That’s a good sign for the company and its shares.
However, the issue most analysts have with Palantir is its share price. Investors are pouring into the stock because of its strong technology and its defense contracts. The stock’s popularity has resulted in some astronomical valuation multiples.
Its Q2 results were underwhelming. The data analytics company will report its Q3 earnings on Nov. 9. That is the best time to judge whether PLTR stock is worth buying. Heading into its earnings, the company has done well. If Palantir’s results come in below analysts’ average estimates again, an excellent opportunity to buy the shares on weakness would be created.
In addition, if Palantir’s longstanding, controversial partnership with ICE, which is reportedly working on a customized platform to replace Palantir’s offering, ends, the loss will be both a blessing and a curse for the company. On the one hand, the markets will likely react negatively to the news because losing revenue ($92 million worth of contracts in this case) is never good for a company.
But the relationship has created a lot of negative attention for Palantir. If the contract is terminated, that negative publicity will be one less thing the company’s management has to worry about.
Considering Palantir’s burgeoning commercial business, the long-term impact of a loss of the ICE deal will be minimal. If anything, such a development would open up another opportunity for you to purchase PLTR stock.
There is little wrong with Palantir’s business at the moment. Every quarter, it signs a plethora of new contracts. Most recently, Palantir won a four-year contract with the Department of Veteran Affairs for $90 million.
Palantir has often said that it wants to become the default operating system for the U.S. government. Although it will take time for that vision to come true, the company certainly has an impressive list of clients in the defense space.
But the company is also doing well when it comes to commercial contracts., as its revenue from private businesses soared 90% year-over-year in Q2.
Buy PLTR Stock on Weakness
At the moment, Palantir’s valuation has reached head-spinning levels. Its underlying business is great, but the stock needs to fall before it’s a buy. The company’s earnings and the cancellation of its ICE contracts could cause PLTR stock to drop.
If that happens, you should take the plunge and buy more shares of the data analytics company.
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.