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5 THINGS TO KNOW ABOUT PALANTIR!
After an incredible month that has seen the stock rise 50% to a new all time high, is the stock of Palantir a growth stock to keep your eye on or one to avoid? The stock has been on a tear since it's IPO in September 2020 thanks to high profile backers of the business and a string of successful partnerships with the likes of the US army, FDA, Pentagon, UK Government & Institute of Health!
So is Palantir likely to keep moving higher or is the stock now overpriced and has it potentially peaked? ๐๐๐ง'๐ฆ ๐๐๐ฆ๐๐จ๐ฆ๐ฆ ๐
THE GOOD:
Palantir is a unique data analytics platform given their specialism within the government sector. This has helped them win the trust of the US & UK governments and I wouldnt be surprised if we see more partnerships struck soon!
Although this could limit Palantirโs ๐ง๐ข๐ง๐๐ ๐๐๐๐ฅ๐๐ฆ๐ฆ๐๐๐๐ ๐ ๐๐ฅ๐๐๐ง in the long term, as the companyโs choice to specialise in providing solutions to governments may limit their appeal to the private sector. In fact, Palantir has been accused in the past by clients for spying on them which doesn't do the company any favours! That said, they are winning contract hand over fist within the government sector and as they expand across the globe we may find out that Palantir does not need private companies!
Analysts are expecting the business to post annual earnings growth of 40% and become ๐ฃ๐ฅ๐ข๐๐๐ง๐๐๐๐ in 2021 with a price-to-earnings ratio of 239. Itโs refreshing to see a growth company that actually makes money, however I do believe that a forward PE of 239 is high for a company posting 40% growth.
The stock therefore seems to have got a bit ahead of itself with investors likely hoping for better than expected earnings. Palantir has done well so far in delivering a steady stream of good news which has kept the stock in an upwards trend with ๐ฅ๐ข๐๐ ๐ฆ๐ข๐๐๐ ๐ง๐๐๐๐ก๐๐๐๐๐ฆ that has been perfect for short term traders.!
THE BAD:
โก ๐๐ก๐๐๐ฌ๐ฆ๐ง ๐๐ข๐ช๐ก๐๐ฅ๐๐๐๐ฆ
Credit Suisse & Morgan Stanley recently downgraded the stock of Palantir setting price targets of $17 on the stock which suggests a 50% pullback.
โก ๐๐ซ๐ฃ๐๐ก๐ฆ๐๐ฉ๐ ๐ข๐ก ๐ฃ๐ฅ๐๐๐ ๐ง๐ข ๐ฆ๐๐๐๐ฆ
Palantirโs revenue growth of 40% is not enough to justify a price to sales ratio of 37. Other growth stocks expecting to become profitable this year including Jfrog, Beyond Meat & Mercado Libre are all ๐๐๐๐๐ฃ๐๐ฅ on a price-to-sales ratio yet growing a lot faster!
โก ๐ฃ๐ข๐ฆ๐ฆ๐๐๐๐ ๐๐ข๐ฅ๐ฅ๐๐๐ง๐๐ข๐ก
The stock price has already more ๐ง๐ฅ๐๐ฃ๐๐๐ in the first 5 months of trading. Investors eager to grab a piece of this exciting new growth stock have been prepared to pay any price and this rush has created a pop in the stock price. This is common for IPOโs and is often followed by a large correction as high as 30-40%!
โก ๐๐๐๐๐ฆ ๐๐๐ฉ๐๐ฅ๐ฆ๐๐ง๐ฌ
As mentioned above, Palantir is becoming increasingly reliant on government contracts to fuel growth. The company only has ๐ญ๐ฎ๐ฑ ๐๐จ๐ฆ๐ง๐ข๐ ๐๐ฅ๐ฆ and relies on less than 20 customers for 60% of itโs revenue. Other fast growing software companies like Snowflake, Fastly & Splunk each have over 3000, 400 & 500 customers respectively! This leaves Palantir vulnerable if they were to lose a couple of clients in the same way we saw the stock of Fastly sell-off 40% last year when they lost TikTok as a client!
โก ๐จ๐ฃ๐๐ข๐ ๐๐ก๐ ๐๐ข๐๐ ๐จ๐ฃ ๐๐ซ๐ฃ๐๐ฅ๐๐ฅ๐ฌ ๐๐๐ง๐
Insiders will be allowed to sell their shares in the company this month! Insiders own 80% of the total outstanding shares and if management are to cash out then this could spark a large ๐ฆ๐๐๐-๐ข๐๐ in the share price.
โก ๐๐๐ ๐๐ง๐๐ ๐ง๐ข๐ง๐๐ ๐๐๐๐ฅ๐๐ฆ๐ฆ๐๐๐๐ ๐ ๐๐ฅ๐๐๐ง (๐ง๐๐ )
Palantir claimed that itโs total addressable market is $119bn which means that the stock is trading at 50% of itโs total addressable market which is huge!
Don't get me wrong, Palantir is an exciting company that has carved out a niche for itself in the hugely lucrative government sector. The company has delivered non-stop good news since their IPO which has sparked a frenzy amongst growth investors. We have seen how this usually ends however Palantir does look like the real deal given their management team, partnerships & financials!
As much as I would be prepared to invest in Palantir, I believe that the stock is currently ๐ข๐ฉ๐๐ฅ๐๐ข๐จ๐๐๐ง and it's $60bn valuation represents where Palantir should be trading in a few years... Not today!
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Disclaimer: All trading involves risk. Only invest money that you can afford to lose and remember that past performance doesnโt guarantee future results. Everything posted by me is for educational purposes only. I am not a financial advisor and no information on this website or any accounts linked with myself should be considered as financial advice. Remember, all trades are at your own risk.
