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Proprietary Data Insights Financial Pros’ Top Big Data Analysis Stock Searches in the Last Month
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Is Palantir Technologies (PLTR) Still a Buy After Soaring 170%? |
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There is a graveyard filled with failed meme stocks. Yet, Palantir Technologies (PLTR) skirted this fate by carving out a lucrative niche by serving government agencies and defense contractors. The stock has been on a tear, up 33% year-to-date and an astonishing +170% in the past year. Palantir’s popularity among financial professionals is immense. Its ticker has been searched more frequently than even the AI giant Microsoft (MSFT). Despite its remarkable success, Wall Street analysts remain cautious. They assigned a hold rating to the stock. This begs the question: Is it too late for investors to hop on the Palantir bandwagon? Or is there still room for growth? Palantir’s Business Palantiris revolutionizing the world of big data analytics helping organizations make sense of vast and complex data sets. Founded in 2003 by a group of entrepreneurs and investors, including Peter Thiel, the company has rapidly grown to become a major player in the industry, with a unique focus on serving government agencies and large enterprises. Palantir offers two main products:
Palantir segments its business into two main areas:
Palantir has been making significant strides in expanding its reach and capabilities. The company recently introduced Foundry for Builders, an initiative aimed at supporting startups and younger companies as they grow. This move showcases Palantir’s commitment to fostering innovation and extending its services to a broader range of customers. Additionally, the company has been investing heavily in its AI and machine learning capabilities, enhancing its platforms’ ability to derive insights from complex data sets. Looking ahead, Palantir has several exciting projects in the pipeline. The company is collaborating with the U.S. Army on the development of the Tactical Intelligence Targeting Access Node (TITAN) systems, a contract worth $178.4 million. This partnership highlights Palantir’s expertise in providing cutting-edge solutions for defense and intelligence operations. Moreover, Palantir’s recent $99.6 million agreement with the U.S. State Department for health monitoring software demonstrates the company’s expanding presence in the government sector and its ability to apply its technology to diverse domains. Financials
Source: Stock Analysis Beyond Palantir’s success growing revenues, the company achieved GAAP operating profitability for the fourth consecutive quarter with operating marge up 1.5% Year-over-Year. Consequently, free cash flow margin expanded to 31.3%, allowing the company to squirrel away cash on its balance sheet for the future. And with no debt, management can use this money how it sees fit. Valuation
Source: Seeking Alpha Palantir has no real direct competition. So, we compared it to other large data companies. Overall, Palantir is quite expensive. It runs at more than twice the price-to-cash flow ratio as Microsoft and has a P/E multiple that’s well over 100x whether looking at trailing or forward earnings. The main drag on Palantir’s earnings are its stock-based compensation. Exclude those and you get P/E ratios in line with its price-to-cash ratio. Yet, even Palantir’s forward price-to-cash flow ratio of 67.7x is rich. Does the company’s growth support this? Growth
Source: Seeking Alpha Compared to its peers, Palantir has the best revenue growth whether looking at one or multiple years. However, it’s only recently translated that into earnings. And according to the earnings presentation, the company expects adjusted free cash flow of $800M-$1B in 2024, or about $0.50 per share. Profitability
Source: Seeking Alpha As we noted earlier, the P&L margins are dragged down by share based compensation. So, looking at the free cash flow margins, Palantir is up there with the best of them, including Salesforce.com (CRM).
Our Opinion 6/10 While Palantir is a fantastic company, we can’t get behind its current valuation. P/E ratios will normalize as stock compensation decreases. Yet, without returning cash to shareholders, this stock just doesn’t offer a compelling investment at these prices. We’d become interested if shares started trading around $15. |
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