Controversy over executives' politics obscures the fact that PLTR stock seems to have cracked the code on high-end data analysis
Palantir Technologies(NYSE:PLTR) is a belief stock. Since its IPO last September, at $10 a share, the stock has more than doubled investors’ money. PLTR stock looks set to end the month at about $22 a share, it traded as high as $35 in January. Its current market cap is $41.7 billion.
Believing in Palantir means believing in its data analysis products, called Gotham and Foundry. It also means believing in its controversial CEO,Alex Karp, who took home $1.1 billion in stock options and grants home last year.
Co-founder Peter Thiel objects to being called“emperor for life,”based on Class F shares giving the co-founders a half-interest in any decision. But you’re buying them, too.
Palantir had revenue of about $1.1 billion last year. Its March earnings indicate it’s on a path toward $1.6 billion this year.You need belief to pay almost 40 times revenue for anything.
Taking Data Down Market
Palantir started with high-end software for governments and big corporations. Government contracts are still an important metric of its success. The$169 millionfrom civilian and military agencies is important but no more so than for what it says about the software’s acceptance — and penetration — in enterprise markets.
Foundry for Builders will try to capitalize on this acceptance in smaller, and self-service, markets. The subscription service was enough for our Luke Lango to put out a bullish call on Palantir recently.
The stock has been buffeted this year by meme investors. Many abandoned it as the pandemic ebbed. But it now has some analysts sending it to the Moon, with an eventual $1 trillion valuation. They see government contracts giving it a moat within that market. They see Palantir’s own investments in SPACs, deploying its cash as a Private Investor in Public Equity (PIPE), as an additional bullish signal for the corporate market.
Interestingly, of the exchange-traded funds that are holding PLTR stock in their portfolios, among the largest holders are social sentiment-themed funds. The shares are in the top 10 holdings of both VanEck Vectors Social Sentiment ETF(NYSEARCA:BUZZ),at 2.94% of assets, and SoFi Social 50 ETF(NYSEARCA:SFYF),at 3.46%.
Have They Cracked the Code?
Many big companies have come-and-gone with big data analysis tools.
Cloudera, which is built on Hadoop, was recently taken privateat $5.3 billionafter flailing in the public market.International Business Machines(NYSE:IBM) has downsized expectations for Watson, which put a friendly front-end on Hadoop.
Palantir says Foundry works by integrating back-end data management and front-end analysis. Gotham turns this integration into a virtual operating system, pulling data from multiple sources, integrating them into a single model.
Palantir next reports results Aug. 10. Analysts are expecting a small profit, 4 cents per share, on revenue of $357 million. That would be only slightly ahead of the March quarter’s $341 million. The expectations for slower growth are bringing out some bears. About 13% of the shares were recently being held short.
To our Alex Sirois, this makes July the perfect time to buy Palantir.If it can show even a small profit the stock could move ahead.
PLTR Stock Valuation Flashes ‘Highly Speculative’
Looking at PLTR stock’s valuation, I see a sign flashing “highly speculative.” It’s trading at 34.3 times salesand near 170x forward earnings.
Yet, what makes it areasonablespeculation is that Palantir is cracking a data analysis code that has frustrated even the Cloud Czars. If Palantir can maintain that expertise, and bring that leadership into the wider enterprise market, this could be a great company.
Our Chris Markoch says both bulls and bears have it wrong on Palantir, and I agree.
The politics of Thiel and Karp, and their iron-fisted control of the company, have some investors underestimating the tool. Its positive free cash flow may have some bulls overestimating its value.
At its current price, however, Palantir is a dirt-cheap speculation. Don’t throw any cash at it that you can’t afford to lose. But if you’ve earned profits elsewhere, and are looking for the next big thing, this may be worth nibbling on.