I have been a huge supporter of Palantir Technologies (NYSE:PLTR) stock and have recommended investors load up on it for the long term.
There was a lot of secrecy surrounding the company and the market’s interest in the firm was negligible at first but it gained traction as the company continued to sign notable contracts.
PLTR stock was trading close to $10 after going public in 2020 and went as high as $45 last January. A lot of investors sold a part of their position during this high and took out their original investment. The stock later tumbled to the $20s in February and hasn’t picked up since then, currently trading at $16.
I see this as a great chance to add the stock to your portfolio. The company has huge potential to grow and it is managing the risks well, it could generate strong returns for investors. However, the investment is not without these risks.
The Consistent Losses
Palantir has managed to generate strong revenue in 2020 but this did not help the company reduce losses. It reported a revenue of $1.09 billion in 2020 but it posted a net loss of $1.17 billion.
Until the third quarter of 2021, the company saw a 44% year-over-year increase in revenue which stood at $1.11 billion. Despite this rise, the loss stood at $364 million. The decline in loss is an improvement but it could be a matter of concern for investors.
Interestingly, the company has not reported profits since its inception. Palantir has been in business for 18 years. I do not think the company will be able to report profits for the next few years and this is one thing that investors need to keep in mind.
Palantir is not a company that generates profit despite growing business and revenue.
Dependence on Government Contracts
One issue persistent with Palantir Technologies is its perceived over-dependence on government contracts. The company has developed the platform, Gotham, with an aim to serve government agencies and it is constantly working towards signing new contracts with the government.
The company has a few commercial clients but not many and the major revenue flows from government agencies. Some investors are of the opinion that the government contracts will put Palantir at the top. Only time will tell.
Palantir does have products that meet the needs of government agencies and it is constantly working towards innovation.
As long as the company is generating revenue, it shouldn’t be a huge problem but over-dependence on the government agencies could lead to trouble in the long term.
The Bottom Line on PLTR Stock
Despite these two risks, I remain bullish on PLTR stock. It may not attract a lot of investors due to the current dip but the company has massive growth potential.
Over the long term, Palantir could expand its commercial clients and grow revenue. It may not generate profits anytime soon but it has the potential to do so in the long term. The one thing PLTR stock requires is patience and you must invest in it only if you plan to hold it for the long term.
If you already own the stock, hold it and if you are planning to enter, now is the best time to do so.
However, you should be able to handle the near-term volatility when it comes to PLTR stock. You may not be able to see immediate upside but the stock is promising for the long term.
It will be interesting to see the financials of the company for the fourth quarter and it may give perspective to the investors about the future of the company.
On the date of publication, Vandita Jadeja 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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.