Defense + Software = Investment?

Defense + Tech = Investment?

Parking your money in defense stocks isn’t the worst idea when geopolitical tensions dominate the news headlines. 

And if that wasn’t enough, inflation is running rampant at the grocery stores and gas pumps. 

On the other hand, you could invest in software companies that deliver high, scaleable margins.

So combining the two should yield an amazing investment opportunity, right?

Palantir could be considered a meme stock for all the fanfare it achieved when it debuted on the markets just a few short years ago.

Heck, it still garners more looks by financial pros than Shopify (SHOP), arguably a much more valuable company.

But that doesn’t necessarily mean it’s a great investment.

Worried about the market? CEO says this could be worth 35 Amazons (Sponsored)

Amazon’s Jeff Bezos surprised investors recently when he revealed that one emerging technology is the key to Amazon’s future success…

In fact, Bezos argues that “it’s hard to overstate the impact” of this game-changing technology. The CEO of ARK Investments takes Bezos further: “We think [it] could approach $17 trillion in market cap — which would be 35 Amazons.”

What in the world could be worth 35 Amazons?

Find out in our new report

Palantir Technologies (PLTR) Business 

Palantir builds software platforms for organizations that integrate their data, decisions, and operations. 

The company’s technology is utilized in the intelligence community to assist in counterterrorism investigations and operations. 

Palantir’s platform breaks down into three categories:

Gotham – Palantir Gotham is a commercially-available, AI-ready operating system that improves and accelerates decisions for operators across roles and all domains. It’s used by government intelligence agencies, health organizations, armies, and police departments to fight terrorism, battle infectious diseases, win wars, and prevent civilian crime.

Foundry – Foundry creates a central operating system for their data. This system is tailored for commercial organizations to collect, process, and analyze data in order to make better operational decisions efficiently.

Apollo – A continuous delivery system that manages and deploys Palantir Gotham and Foundry.

PLTR breaks its revenues down into two segments: Government and Commercial.

PLTR technology can be applied for anti-money laundering, AI and machine learning, automotive and mobility, auto racing, contract management, cryptocurrency, data protection, defense, edge AI, energy, Federal Health, financial services, health and life sciences, intelligence, IoT analytics, retail, supply chain, and telecommunications. 

Some of the most recent announcements include partnering up with the CDC to bolster the fight against COVID-19. 

Financials

PLTR has experienced significant growth over the last three years, reaching $1.5B in revenue in 2021, a near 50% spike from the 2020s $1B in revenue and 2019s 743M in revenue. 

Even more impressive is that the firm boosted its gross margin from 67.7% in 2020 to 78% in 2021.   

PLTR has a price to cash flow of 75.5x, which is rich when you consider the sector median is 20.39x. 

Furthermore, PLTR has a free cash flow of $321m. In other words, it has $321M of cash left over after it pays for its operating expenses and capital expenditures. 

PLTR has a free cash flow per share of 0.11x, which tells us it has $0.11 per share after paying for its operating and capital expenditures. 

PLTR has a current ratio of 4.34x. That means its assets are 4.34 times greater than its short-term liabilities. 

Moreover, PLTR has a quick ratio of 4.11x. That means its highly liquid assets are 4.11 times greater than its short-term liabilities. 

The firm has a reasonable debt-to-equity ratio of 0.10x. 

Valuation

Valuation is concerning for PLTR. The firm trades at a price to sales ratio of 15.5x, significantly higher than the S&P 500 average of 2.9.  

The P/E (Non-GAAP) ratio for PLTR is 88.71x which is insane when considering the sector median is 19.27x. 

Despite the relatively high valuation, some investors are willing to be owners of the stock because of its growth potential. 

PLTR experienced revenue growth of 41.1% year over year which is nothing short of phenomenal. 

However, you’re paying a hefty premium for that growth. 

Our Opinion – 5/10

PLTR is a fast-growing software company that offers its customers a substantial amount of utility. However, valuations are sky-high, and the company is still not profitable. 

We like this company but still feel it’s still priced high. We would be buyers at $8 per share.