Palantir Stock Is Cheap and Offers Substantial Upside

  • Palantir’s (PLTR) commercial business is growing at a rapid clip.
  • The war in Europe creates a comeback opportunity for its government business.
  • PLTR stock is highly attractive after the pullback.
Palantir Technologies (PLTR) headquarters

Source: Sundry Photography / Shutterstock.com

Palantir (NYSE:PLTR) is recovering after its post-earnings selloff. PLTR stock has been up more than 10% in the past 30 days, comfortably outperforming the S&P 500.

Russia’s invasion of Ukraine has thrown a spotlight on its services, dispelling concerns about the potential debacle of its government business. Though the stock isn’t significantly undervalued anymore, it still trades below analyst estimates, presenting a solid opportunity to pick it up at a discount.

Palantir has transformed into a full enterprise software provider, enabling its customers to make critical operational decisions. The current situation shows how important the company is to the United States and its allies. Layer that with its fast-growing commercial business, and you have a robust business that is just getting started in its growth story.

PLTR Palantir $14.03

Seizing the Opportunity

Palantir’s fourth-quarter earnings card showed a marked slowdown in its government segment. However, the Russia-Ukraine conflict seems to have flipped the script on the somber expectations from its government business. Palantir is looking to seize the opportunity to expand its business in Europe amidst increased government spending in the region.

The war in Europe is compelling Western countries to expand their national security budgets. The North Atlantic Treaty Organization (NATO) created a $1 billion fund for AI strategy. And, in a big policy shift, Germany increased its defense spending from 1.5% to 2%. Hence, the company aims to leverage its connections to expand its positioning in the West.

Palantir’s Gotham platform offers an unique solution that Western intelligence has effectively utilized during the conflict. So, the company is wasting little time forcing the issue with European governments in bringing their intelligence and surveillance on par with the U.S. government.

The company’s chief operating officer Shyam Sankar commented on the utility of the Gotham platform during the current crisis. He states: “The work we’ve done with MetaConstellation is being used by multiple Western-allied services to observe from an intelligence domain.” Additionally, Palantir’s CEO Alex Karp encouraged European leaders to work alongside the company to be better prepared to face “real threats” like Russia.

Growth Is on Track

Palantir’s recently released fourth-quarter results showed plenty of bright spots for its business. The commercial side of its business has been growing exceptionally, and the trend continued into the fourth quarter. The segment increased 47.2% on a year-over-year basis to $194.4 million and continued gaining momentum from previous quarters. Moreover, it added 34 new customers and closed at 63 deals worth over $1 million during the quarter.

The company has done well to modularize its Foundry platform to adapt to the requirements of its commercial customer base. The platform’s success will be key in offsetting losses, and the choppiness in its government contract wins. Hence, it will continue making its platform more modular in facilitating commercial adoption.

During the quarter, the company’s government revenues were up 26% from the prior-year period but decelerated considerably on a sequential basis. Despite the marked slowdown, the pertinence of Gotham cannot be denied, especially during the current crisis in Europe. Therefore, there are plenty of growth opportunities for the platform to grow handsomely in the future.

Furthermore, Palantir’s generally accepted accounting principles (GAAP) earnings before interest and tax (EBIT) margin improved significantly from -13.6% to -23.4% in the third quarter. Also, its operating margin of 29% for the fourth quarter exceeded the 22% guidance. Mr. Karp also talked about his commitment to delivering profitability moving forward.

Bottom Line on PLTR Stock

The going has been remarkably tough for PLTR stock of late.

In the past six months, the stock slid over 50% reversing most of its post-initial public offering (IPO) gains. Hence, it now trades at a more attractive price, in line with its fundamentals. The hiccups in its government business have left a sour taste in its investor’s mouths. However, the war in Europe has sprung its Gotham platform back into focus. Moreover, its commercial business continues to grow rapidly and will help reduce the lumpiness in its government business.

Therefore, there is plenty of upside for PLTR stock, and its attractive valuation further sweetens the deal for investors.

On the date of publication, Muslim 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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.


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