Well, I missed on that call. In early December, I told InvestorPlace readers that Palantir (NYSE:PLTR) was sending off a bullish signal. PLTR stock had just dropped below $20. And that had served as a level of support for the stock.
However, macroeconomic forces have forced Palantir stock lower and investors are wondering what the new floor will be.
I’m not going to be bullish enough to say that PLTR stock can’t go lower. I believe it’s oversold, but with investors shifting towards risk-off assets, it almost certainly will.
That being said, I throw my hat in with Chris Tyler and say that Palantir is “a bull in bear’s clothing.” How long it will take for that bear to start to roar? I have no idea. But I believe it will for simple reasons.
Revenue Continues to Grow
Palantir went public via a direct listing in 2020. Since then, the company has grown its revenue in each of its first five quarters. Now I suppose investors can quibble that the rate of growth has been uneven; the average rate of growth is only around 7%. On the earnings front, there has been no growth in the last few quarters.
However, unlike many of the companies that have gone public in the last couple of years, Palantir was not a pre-revenue company. In fact, it was already a profitable company. Instead of getting in on the ground floor, investors entered a house that was fully built
The Company is Growing Its Private Sector Business
Some investors remain concerned that a large percentage of Palantir’s business comes from the federal government. In the most recent quarter, it accounted for 56% of the company’s business.
And specifically, much of that comes from the Department of Defense. This has put Palantir in the middle of some things that Americans would rather not think about.
However, as I pointed out in my last article, Palantir saw a 37% year-over-year (YOY) increase in commercial revenue in the last quarter. And on a YOY basis, the company’s overall revenue grew by about 36%.
That doesn’t seem like a company that’s struggling to diversify its business.
Margins are Improving
I credit my colleague Faisal Humayun who noted that the company’s operating cash flow in the last quarter was $240 million for the first nine months of 2021. That was a stark contrast to the cash burn of $278 million in the first nine months of 2020.
If you believe that cash flow plays a key role in a company’s valuation than it’s hard to see Palantir as being overvalued at this time.
What’s Your Why or Why Not on PLTR Stock?
So there you have it. Three reasons why you can be bullish about Palantir. I sense that Palantir is being “punished” because it waited too long to go public. And I sense that many people simply don’t like the company’s executive compensation model which means there will always be an uncomfortable amount of insider selling.
If you feel uncomfortable about Palantir’s business model, you should avoid the stock. If owning the stock is going to affect your sleeping patterns, PLTR stock is probably not for you. If the volume of shares being sold by company insiders upsets you, stay away.
It’s really that simple. You don’t have to buy Palantir stock. But you should know your reason for not doing so. After that, you’re better off living with your decision and not looking back. Because at any given time, you’ll find reasons that support or contradict your reason(s).
And let me be clear, PLTR stock may have further to drop. Things are getting crazy with stocks and I believe that they could get worse before they get better. That makes Palantir a buy-and-hold stock at the moment. Invest accordingly.
On the date of publication, Chris Markoch 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 Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.