In the world of big data, Palantir (PLTR) is one of the most sought-after stocks in the market today. That said, investors seem to be rather divided on their opinion of Palantir, as far as the company’s near-term outlook is concerned.
What’s intriguing about Palantir is the relatively even spread of analyst opinion on this stock. Indeed, the six analysts that have assessed Palantir in the past 3 months are split across the spectrum. This is a stock with two Buys, two Holds, and two Sells among its analyst pool. There’s certainly reason for this.
Let’s dive into why such a divergence of opinion may exist with this stock.
Bull Case: PLTR Stock Is Well-Positioned to Finally Take Off
Late last year, as election results rolled in and indicated President Biden would win, Palantir is one of the stocks that took off. Shares of PLTR stock went from pre-election levels of around $10 per share to as high as $45 per share during the January market mania, when many stocks shot higher in parabolic fashion.
The hope for many investors at this time was that a resurgence in government spending would make companies like Palantir, that are reliant on government contracts for a majority of their revenue, shoot higher. Indeed, Biden has held true to his promises and put forward some aggressive spending bills of late. Accordingly, to some degree, this speculative fervor was correct.
Additionally, Palantir’s run in January was also largely attributed to the rising prominence of retail investors. Whether or not Palantir ultimately cracks the list of meme stocks today remains to be seen. However, earlier this year, this is a company which retail investors jumped on in a big way.
Bulls on Palantir may be hopeful of yet another leg higher for Palantir, should retail investors focus their attention and dollars on PLTR stock once again. While a speculative pick in this regard, sentiment appears to be playing a big role in how this government contractor of data analytics services performs.
Given the company’s relatively strong recent results, investors may be scratching their heads as to the recent trajectory of this stock. Palantir grew its earnings by 49% year-over-year, with free cash flow this year expected to come in at approximately $150 million. Adjusted earnings per share came in right on target, with $0.04 per share this past quarter.
Bears: Palantir Still Overvalued
Palantir’s revenues are certainly growing at an attractive pace. That said, bears may note that much of this growth likely has already been priced in relative to the pre-election levels at which PLTR stock traded. Growth in government revenue of 83% year-over-year drove these results, validating investor optimism with this company relating to the Biden Presidential win.
However, for a company that’s projected to bring in cash flows of $150 million this year, the company’s $43 billion market cap certainly is steep. Accordingly, long-term fundamental investors may choose to steer clear of this stock. While the market is broadly overvalued right now, Palantir’s price to cash flow valuation multiple is at eyewatering levels.
Additionally, while Palantir’s adjusted earnings per share were positive, the company’s GAAP loss was significant. Due mainly to stock-based compensation, direct listing costs and other one-time fees, Palantir’s net loss ballooned from $580 million last year to $1.2 billion this year. That’s not good.
Sure, these are one-time expenses. However, Palantir is a company that’s been around for a while and has posted bigger and bigger losses in recent years. The trend is concerning for many investors.
What Analysts Are Saying About PLTR Stock
According to TipRanks’ analyst rating consensus, PLTR stock comes in as a Hold. Out of 6 analyst ratings, there are 2 Buy recommendations, 2 Hold recommendations, and 2 Sell recommendations.
As for price targets, the average Palantir price target is $22.33. Analyst price targets range from a low of $17.00 per share to a high of $30.00 per share.
Bottom Line
Palantir is a stock that inspires a great divide among investor opinion right now. On the one hand, this is a company with an excellent top line growth rate and solid near-term growth catalysts. If Palantir can narrow its losses, or even provide a GAAP profit, perhaps fundamental investors will jump aboard. In such a scenario, PLTR stock is one that could take off.
On the other hand, this company’s valuation is rich. Investors looking to model this out will likely have trouble making sense out of a $43 billion valuation and $150 million in annual cash flows, even factoring in substantial FCF growth.
Accordingly, this is a stock that’s deserving of its Hold rating.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
