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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? 𝗟𝗘𝗧'𝗦 𝗗𝗜𝗦𝗖𝗨𝗦𝗦 👇
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 Palantir’s 𝗧𝗢𝗧𝗔𝗟 𝗔𝗗𝗗𝗥𝗘𝗦𝗦𝗔𝗕𝗟𝗘 𝗠𝗔𝗥𝗞𝗘𝗧 in the long term, as the company’s 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 𝗣𝗥𝗢𝗙𝗜𝗧𝗔𝗕𝗟𝗘 in 2021 with a price-to-earnings ratio of 239. It’s 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 𝗥𝗢𝗖𝗞 𝗦𝗢𝗟𝗜𝗗 𝗧𝗘𝗖𝗛𝗡𝗜𝗖𝗔𝗟𝗦 that has been perfect for short term traders.!
THE BAD:
⚡ 𝗔𝗡𝗔𝗟𝗬𝗦𝗧 𝗗𝗢𝗪𝗡𝗚𝗥𝗔𝗗𝗘𝗦
Credit Suisse & Morgan Stanley recently downgraded the stock of Palantir setting price targets of $17 on the stock which suggests a 50% pullback.
⚡ 𝗘𝗫𝗣𝗘𝗡𝗦𝗜𝗩𝗘 𝗢𝗡 𝗣𝗥𝗜𝗖𝗘 𝗧𝗢 𝗦𝗔𝗟𝗘𝗦
Palantir’s 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 𝗖𝗛𝗘𝗔𝗣𝗘𝗥 on a price-to-sales ratio yet growing a lot faster!
⚡ 𝗣𝗢𝗦𝗦𝗜𝗕𝗟𝗘 𝗖𝗢𝗥𝗥𝗘𝗖𝗧𝗜𝗢𝗡
The stock price has already more 𝗧𝗥𝗜𝗣𝗟𝗘𝗗 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 IPO’s and is often followed by a large correction as high as 30-40%!
⚡ 𝗟𝗔𝗖𝗞𝗦 𝗗𝗜𝗩𝗘𝗥𝗦𝗜𝗧𝗬
As mentioned above, Palantir is becoming increasingly reliant on government contracts to fuel growth. The company only has 𝟭𝟮𝟱 𝗖𝗨𝗦𝗧𝗢𝗠𝗘𝗥𝗦 and relies on less than 20 customers for 60% of it’s 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!
⚡ 𝗨𝗣𝗖𝗢𝗠𝗜𝗡𝗚 𝗟𝗢𝗖𝗞 𝗨𝗣 𝗘𝗫𝗣𝗜𝗥𝗔𝗥𝗬 𝗗𝗔𝗧𝗘
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 𝗦𝗘𝗟𝗟-𝗢𝗙𝗙 in the share price.
⚡ 𝗟𝗜𝗠𝗜𝗧𝗘𝗗 𝗧𝗢𝗧𝗔𝗟 𝗔𝗗𝗗𝗥𝗘𝗦𝗦𝗔𝗕𝗟𝗘 𝗠𝗔𝗥𝗞𝗘𝗧 (𝗧𝗔𝗠)
Palantir claimed that it’s total addressable market is $119bn which means that the stock is trading at 50% of it’s 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 𝗢𝗩𝗘𝗥𝗕𝗢𝗨𝗚𝗛𝗧 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 doesn’t 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.