Could Palantir Technologies (NYSE: PLTR) replace Tesla (NASDAQ: TSLA) in the Magnificent Seven this year? If today’s euphoria persists, anything is possible as Palantir Technologies is suddenly a darling of the market.
At the same time, Palantir’s chief executive issued a dire warning that signals ongoing danger. However, if detecting and preventing cyber-danger is Palantir’s business, then business is evidently quite good.
A bearish take on Palantir stock
Starting off with the bad news first, William Blair analyst Louie DiPalma recently spelled out the bearish case concerning Palantir stock. He observed that the stock had lost “momentum in November and December following negative news associated with the U.K. NHS [National Health Service] and U.S. Army Vantage contracts.”
In other words, Palantir Technologies’ government contracts might not be as firm as previously assumed. Consequently, DiPalma expects “more negative contract developments and slowing U.S. commercial growth” for Palantir “to result in share downside over the next 12 months.”
However, that may turn out to be a bad call. DiPalma reiterated his Underperform rating on Palantir stock, but it’s up 26% today alone.
That soaring share price might bring up another concern though. Value seekers probably won’t consider it a good thing that Palantir Technologies’ GAAP-measured, trailing 12-month price-to-earnings (P/E) ratio is 247.55. Meanwhile, the sector median P/E ratio is a much more reasonable 28.18.
Therefore, if you don’t want to chase PLTR stock after its vertical move, that’s understandable. However, I certainly don’t recommend selling the stock short. After all, as the old saying goes, the market can remain irrational longer than you can remain solvent.
Palantir’s results support the bull case – Somewhat
On the other hand, maybe Palantir’s fourth-quarter financial results were so positive that some investors think its stock is worth buying at any price. I don’t personally believe that any stock should be bought at any price, but Palantir Technologies’ financial results were indisputably good.
First and foremost, Palantir’s management bragged that the company has posted five consecutive quarters of GAAP-measured profitability. I’ll admit that’s a fair bragging point as it indicates that the company isn’t an ultra-speculative, unprofitable businesses.
In the U.S. at least, Palantir seems to be on a fast track to success. Amazingly, the company’s U.S. commercial revenue grew 70% year over year to $131 million, while its U.S. commercial customer count increased 55% year over year to 221 customers.
Turning to Palantir’s public-sector clients, its global government revenue grew 11% year over year to $324 million. That’s not jaw-dropping, but it’s perfectly respectable. However, investors shouldn’t simply dismiss DiPalma’s aforementioned warning about the potential for “more negative contract developments.”
Now let’s get down to the nitty-gritty. Palantir Technologies’ fourth-quarter revenue increased 20% year over year to $608 million, beating Wall Street’s call for $603 million. Furthermore, the company reported adjusted earnings per share (EPS) of 8 cents. That’s not a huge number when the stock is over $20, although that result is in line with analysts’ consensus estimate of 8 cents per share.
Thus, value-conscious investors might question whether Palantir’s earnings results justify a 26% share-price rally. Five consecutive quarters of GAAP-measured profitability is all fine and well, but Palantir Technologies doesn’t deserve a medal for this.
For the current quarter, Palantir expect to generate $612 million to $616 million in revenue. This implies moderate sequential revenue growth, but as with all forward guidance, there’s no guarantee that it will actually happen as anticipated.
Palantir’s CEO doesn’t hold back
Like Tesla CEO Elon Musk, Palantir’s chief executive, Alex Karp, is evidently prone to statements that might charitably be called “unusual.” For instance, Karp characterized Palantir Technologies’ quarterly commercial business as “bombastic, baller, [and] incomprehensibly good.”
Those descriptors weren’t in Palantir’s quarterly financial press release, of course. In any event, Karp’s loud and proud persona may be off-putting to some investors, much like Musk’s is sometimes.
Here’s a sampling of some other Karp-isms that will undoubtedly catch people’s attention:
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“The parts of the government that are preparing to go to war are either using Palantir or are about to use Palantir.”
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“Because if I’m right, [Palantir’s skeptics’] businesses and investments are all going to fail.”
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”It certainly feels like we’re in a world of increasing chaos and danger.”
Clearly, Karp is supremely confident about his company. As for the “increasing chaos and danger” quote, if this is true today, then it’s also been true for generations.
When all is said and done, Palantir Technologies delivered a good quarter, and its chief executive certainly knows how to garner attention. Given its valuation after today’s share-price rally though, it’s probably wise to let PLTR stock cool down before taking a long position.