Palantir (NYSE:PLTR) stock represents an analytics-focused, growth stock in a time when that’s not ideal. And based on analyst consensus prices, there isn’t a ton of upside in Palantir either. Their average consensus price sits at $13.75 and shares currently trade at $12.59.
That indicates that Palantir is close to fully priced at the moment. But there’s still upside in the shares given the future projected trajectory of the company.
Growth Narrative
Palantir is a stock that remains attractive due to growth. Growth stocks have taken a beating over the last few months, there is no doubt about it.
But Palantir’s growth prospects have to entice investors moving forward. Per the company’s Feb. 17 earnings report, “Annual revenue growth of 30% or greater through 2025” can be expected.
And that’s what the company is also telegraphing for the next quarter when it anticipates $443 million in revenues. The company posted $341 million in the first quarter of 2021. If it hits that $443 million this year that would represent 29.91% top-line growth on a year-over-year basis.
Make no mistake about it, Palantir is losing money still. Growth and losses tend to go hand-in-hand in the stock market. But overall Palantir is heading in the right direction. The company’s $1.166 billion net loss in 2020 shrunk to $520 million in 2021.
Even so, things are temporarily looking up for share prices. As Chris MacDonald explained:
Rising interest rates by definition increase the discount rate used to value stocks. For companies with a greater proportion of their earnings coming from years out in the future, discounting those earnings back to present day provides a much smaller value using a higher discount rate.
That implies PLTR stock should be suffering. But Palantir prices have risen despite a rate hike proving that theory and practice are sometimes two different things.
Breakeven Ahead?
I noted that although Palantir recorded a $520 million net loss in 2021 that it was headed in the right direction. The company decreased its net loss by $646 million in the year. If it were to do so again in 2022 it would report a net gain.
Don’t bet on that.
The professionals who track the firm closely believe it isn’t that far away, though:
Consensus from 11 of the American Software analysts is that Palantir Technologies is on the verge of breakeven. They anticipate the company to incur a final loss in 2023, before generating positive profits of US$52m in 2024. Therefore, the company is expected to breakeven roughly 2 years from now.
One further reason to be positive about Palantir as it marches toward a break-even point is debt. Or the lack thereof. The company doesn’t currently have any on its balance sheet. That means it has lower liability than many comparable firms. Growth companies often carry debt loads, making Palantir something of an anomaly in a positive manner.
What to Do With PLTR Stock
Palantir probably doesn’t have a lot of room to move upward right now. Again, it is close to being fully priced at the moment.
But it is performing well and headed toward a brighter future. That brighter future should look like a reasonably strong growth company that reaches a net gain in a few years’ time. The company managed to reduce its losses drastically when it last reported earnings. It is moving in the right direction.
That probably means little to investors looking for short-term wins but that’s not important. Investors who are willing to play the long game with Palantir should be rewarded handsomely. It is fully priced now because it still reports net losses. In a few years’ time it’ll be more valuable as a consequence of breaking even. So it’s hard to recommend that PLTR stock has much to offer investors at the moment.
On the date of publication, Alex Sirois 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.
