After much trepidation in the last few months, the S&P 500 broke new records again. Sadly for Palantir (NYSE:PLTR) stock the story is not as happy.
PLTR stock is down 20% this year, so today we make the argument for owning it. The index breakout yesterday was behind strong moves from Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to name two.
There was no specific news, just the abatement of worry-wart rhetoric. The experts have been wrongly calling for the end of this rally for a while. The right thing to do is just to trade the price action at hand and the fundamentals behind it.
The macroeconomic conditions still favor more upside than downsides scenarios. However, there are pockets of weakness, and that includes great companies like Palantir. The stock is now closer to its year lows and for no specific reason. My conclusion today is that it deserves a bit more kudos than it has.
PLTR is wrongly out of favor. It may be low on fans, but not on talent or potential. The small-cap sector has been under pressure for weeks, dragging PLTR with it. They showed brilliance early November, but that ended in a five-week slide to new lows. The main indices need them to join the party, else this breakout will stall.
They are making an effort now, let’s see if it sustains this time.
PLTR Stock Is Lagging Its Potential
Palantir fundamentals suggest a good long-term prognosis. The company is in the right segment and at the right time. The digital revolution is in full swing and a big part of it is artificial intelligence (AI). That’s where they excel, and they are carving themselves a nice niche of the action.
Currently they have a yearly revenue rate of $1.5 billion, and $1.1 billion of gross profit. More to it is that they are growing at a nice clip. The management team represents itself very well, and Wall Street should give it more benefit than doubt. Nevertheless, investors are blind to it and therein lies a window of opportunity.
The stock fell into a strong support zone once again. This should be an entry spot not one for panic. In the long run if the stock markets are higher, then PLTR stock is also doing well. They have an early mover advantage even though it’s not absolute. The AI process has a long runway ahead of it, so demand should remain strong.
Moreover, Palantir has a big book of business with the government. Therefore, the revenue stream should be diversified enough to survive downturns. They are not yet profitable, but they don’t have to be. The primary objective now is to grow to sales then worry about profitability.
They Have Experience on Their Side
PLTR stock is new to Wall Street but the company has been around since 2003. Much of their earlier years were to establish the AI market. Now the ramp should be faster because AI is a real thing, not just a fantasy. In the next few years it will become more of a necessity than a novelty.
The more “digital” companies become, the more help they will need processing data. Otherwise it’s just a bunch of zeros and ones that do nothing. Their target audience can be in any sector, so they don’t have to focus on verticals. All companies are collecting data, so everyone is a potential client.
Teams will need to empower their human resources with on-the-fly strategic help. Not doing that means knowingly putting themselves at a disadvantage to their competition. The future will not be on paper, and the digital revolution is a trend not a fad. The pandemic just put it into high gear, so those who are not on board will lag.
Palantir stock needs new agents. According to Yahoo Finance, there aren’t enough experts covering the stock. This could mean that PLTR buyers now are in ahead of the masses. Even then, the average analyst price target is $23.80.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
