The Only Meme Stock That Has a Chance

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When the meme stock craze started, it revolved around retailers like GameStop, Revlon, and Bed Bath & Beyond.

That’s why it’s so odd that software company Palantir (PLTR) got roped in. It’s about as far from those stocks as you can get, not to mention hasn’t been public for that long.

It’s financial pros’ number one data and analytics company search by a mile over the last month. The next closest company doesn’t get even 10% of the search volume Palantir does.

PLTR shares are down more than 55% this year. But does that make this stock cheap? 

Let’s take a deep dive to find out.

Palantir’s Business

Palantir builds software and platforms for commercial organizations and governments to integrate their data, decisions, and operations at scale. It utilizes artificial intelligence, machine learning, and big data analytics. 

It’s a global company, but primarily generates its business from the U.S. 

Palantir’s platform breaks down into three categories:

1. Gotham: A commercially available, AI-ready operating system that improves and accelerates decisions for operators across roles and all domains. Government intelligence agencies, health organizations, armies, and police departments use it to fight terrorism, battle infectious diseases, win wars, and prevent civilian crime.
2. Foundry: Foundry creates a central operating system for data. This system is tailored for commercial organizations to collect, process, and analyze data in order to efficiently make better operational decisions.
3. Apollo: A continuous delivery system that manages and deploys Gotham and Foundry.

Palantir breaks its revenues into two segments: government and commercial.

During its latest quarter, the firm grew its U.S. revenue by 45%, U.S. government revenue by 27%, and U.S. commercial revenue by 120% year over year.

Palantir became very popular on Reddit boards in 2021 as part of the meme stock craze. However, unlike other meme stocks, PLTR actually has a growing business. 

Financials

PLTR doubled its revenue growth from 2019 to 2021. 

It’s on pace to have its best year in terms of revenue. Its 12-month trailing revenues stand at $1.7 billion. 

In fact, according to its last quarterly earnings report, it increased its revenues by 25.9% YoY. 

Moreover, the firm has $2.4 billion in total cash and $256 million in total debt. It has a current ratio of 4.3x. 

Valuation

PLTR isn’t profitable yet and therefore doesn’t have a P/E GAAP ratio. However, it does generate positive cash flow.

The company doesn’t have a direct competitor but competes with some businesses in areas like deep analytics, machine learning, and artificial intelligence.

Palantir boasts a price-to-cash-flow ratio of 56.8x, which isn’t as strong as Tyler Technologies (TYL) at 30.4x, Cognizant Technology (CTSH) at 11.3x, or Splunk (SPLK) at 47.9x. 

At a price-to-sales ratio of 9.3x, PLTR trails TYL at 8.2x, Alteryx (AYX) at 5.1x, SPLK at 3.7x, and CTSH at 1.5x. 

Profitability

PLTR has an impressive gross profit margin of 78.7%. 

However, the firm’s net income margin is currently -30.9%, and its operating margin is -13.3%. TYL has a net income margin of 9.8%. CTSH’s is 11.7%. 

PLTR has a return on equity of -24.4%, while TYL’s is 7.8% and CTSH’s is 19.5%. 

CTSH has nearly double the market cap of PLTR, but it has $2.6 billion in cash from operations compared to PLTR’s $292.1 million. TYL has a smaller market cap than PLTR yet has $450.6 million in cash from operations. 

Growth

PLTR’s revenue grew 31% YoY, which is better than the competitors on the list, except for TYL’s 43.4%. 

PLTR’s U.S. commercial revenue was up 120% YoY in Q2 2022. While a weaker economy isn’t great for any business, Palantir’s reach extends to over 40 sectors. 

Our Opinion 6/10

Despite shares being down 55% year to date, PLTR is still overvalued with a market cap of $17 billion. 

Investors aren’t willing to pay a premium for growth when interest rates are rising. They want companies that make money, and PLTR isn’t there yet. 

It’s possible that shares can rise from here, but we’d wait for the firm to show profitability first.