I am bullish on Palantir Technologies (PLTR) as the company’s strong growth momentum and competitive strengths present intriguing upside.
Palantir is an American technology company that is involved in big data analytics. The company was founded by Peter Thiel, Nathan Gettings, Stephen Cohen, Joe Lonsdale, and Alex Karp in 2003. (See Analysts’ Top Stocks on TipRanks)
Strengths
Palantir is a software company that comprises of three distinct projects: Palantir Gotham, which is used by the United States Intelligence Community and the U.S. Department of Defense; Palantir Metropolis, used by banks, hedge funds, and financial services; and Palantir Foundry, which is used by corporate clients, including Airbus, Fiat Chrysler Automobiles, and Morgan Stanley.
Recent Results
Palantir reported revenues of $392 million in the third quarter of 2021, beating analysts’ expectations of $385 million. Although this shows a year-over-year growth of 36%, it is a slowdown from the 49% posted in Q2; however, the company provided a strong outlook for the fourth quarter.
In the third quarter of 2021, Palantir closed 54 deals, each of which are valued at $1 million or more. Out of these, 33 deals are worth $5 million or more, and 18 deals are worth $10 million or more.
Palantir added 34 net new customers in the third quarter. The number of commercial customers grew 46% from the previous quarter, and 135% from December 31, 2021. The commercial revenue in the U.S. saw a growth of 103% from the previous year.
The company reported cash flows of $101 million, which represents a 26% margin. The adjusted free cash flow is $119 million, which represents a 30% margin. Adjusted diluted earnings were $0.04 per share.
Palantir said its expected revenue for the fourth quarter is $418 million, beating consensus estimates of $402 million. The full-year revenue is expected to be about $1.53 billion, showing a 40% growth year-over-year. Its outlook for free cash flow (adjusted) is expected to exceed $400 million, up from its previous guidance of over $300 million.
The company also said it expects annual revenue growth of at least 30% through 2025.
Valuation Metrics
Palantir’s stock has very high valuation multiples attached to it. Its EV/EBITDA ratio is rather high at 70.1x and its P/E ratio is even higher at 106.3x.
That said, the company does have tremendous growth momentum and potential. This year, EBITDA is expected to soar by 130.6% and continue growing at a 17.7% clip in 2022, while normalized EPS is expected to grow by 39.1% in 2022.
Wall Street’s Take
From Wall Street analysts, Palantir Technologies earns a Moderate Sell analyst consensus based on one Buy rating, three Hold ratings, and four Sell ratings in the past three months. The average Palantir price target of $23.14 puts the upside potential at 19.1%.
Summary and Conclusions
Palantir Technologies is a cutting-edge artificial intelligence company that has a massive growth runway ahead of it in both its government and commercial businesses.
The balance sheet is in fantastic shape and the company has successfully managed to attract some of the best and brightest minds in its space to help the company innovate and continue to deliver new products to market.
That said, the valuation is quite lofty and requires substantial growth to validate and Wall Street analysts are generally bearish on the stock right now. However, the recent sharp pullback and the company’s fantastic long-term potential make it a potentially compelling opportunity.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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