The fall in the stock price of data analytics software company Palantir (PLTR) has continued unabated in 2022 but it's hard to see why.
Today's (20 January) price of $14.95 is 34% off where it was this time last year. For a $1bn company that is forecasting a 40% growth in the coming year, with $2bn in cash and equivalents and limited long term debt its future looks promising.
What is the latest Palantir share price forecast and analysis?
PLTR stock analysis
Palantir stock has had a turbulent ride since its September 2020 IPO. Launched at $10 a share, the price jumped by 350% to reach a record-high of $45 on 27 January 2021. By 11 May, with an intraday low of $17.06, the stock had fallen by 62%. That was still far above its market debut levels, however.
Palantir regained momentum, hitting a high of $27.5 on 28 June, which was followed by largely sideways price action. The stock reached a peak of $28.57 on 23 September before falling to an intraday low of $23.02 on 4 October. At the time of writing, on 20 January, it was trading at $14.95.
The stock had pleased investors with a year-to-date return of 10.91%. But, Palantir is currently trading below both its 50-day and 200-day moving average, meaning investors are growing sceptical about its per-share price.
Palantir’s key growth drivers
Palantir’s first big run came alongside rises in other meme shares, such as AMC Theaters and GameStop, in early 2021. In fact, some analysts have become convinced that Palantir is nothing more than a run-of-the-mill meme stock.
In an article for Seeking Alpha, financial writer Andres Cardenal argued that positive stories about Palantir are the real driver behind the company’s share price growth.
Others are not quite so sure. In a note to investors last January, analysts Louie DiPalma and Bhavan Suri said they expect Palantir to benefit from “favorable government tech industry dynamics”.
Palantir bills itself as a company that builds “software platforms for large institutions whose work is essential to our way of life”.
It remains unclear exactly who Palantir’s customers are, but the company’s chief operating officer, Shyam Sankar, offered some clues during the Q2 2021 earnings call. Sankar said customers can range from civil servants and supply chain operators to factory workers.
The primary driver of Palantir's growth is the company’s quick and easy software update process. While that may be difficult for many investors to grasp because it isn’t something that shows up on the balance sheet directly, Palantir said in its 2020 annual report that the process reduces the number of software engineers it takes to run its system. According to the company, this is also a key selling point for existing customers.
On 2 December it announced it had signed Kinder Morgan, one of north America's largest energy infrastructure companies, to a multi-year partnership to deploy Palantir’s data integration software platform, Foundry, in Kinder Morgan’s storage operations to drive efficiency and safety.
Also on 2 December it bagged a $43m extension of its contract from Space Systems Command, the acquisition wing of the Space Force organisation bringing the total value to $91.5m. However news of the new deal only generated a 1.6% increase in the share price.
On 7 December it announced a partnership with German high tech company Merck to deliver a "secure collaborative data analytics platform for the semiconductor industry".
On 17 December the US Army’s Program Executive Office for Enterprise Information Systems (PEO EIS) opted to execute the second option year of its partnership with Palantir on the Army Vantage program, for $116.3 million for the year.
On 20 December it announced that biomolecular condensates company, Dewpoint Therapeutics would use Palantir’s Foundry platform to "help power Dewpoint’s efforts to discover treatments and cures for the most challenging diseases".
On 18 January Palantir announced it was teaming up with Canadian technology company ThinkData Works and Canada-based auto parts leader Martinrea International to develop and launch a Supply Chain Resiliency Platform solution to "help address the urgent supply chain crisis impacting manufacturers and consumers worldwide".
As of 30 September 2021, Palantir had 203 total customers with average sales per customer of $7m.
Risks ahead for Palantir
Palantir offers three platforms: Palantir Gotham, Palantir Foundry and Palantir Apollo. Gotham was created for analysts at defense and intelligence agencies during the US wars in Iraq and Afghanistan. Foundry is used across several commercial settings, as stated on the company’s website. Apollo offers a "continuous delivery system that powers our software platforms".
According to the company’s quarterly statement, its Gotham platform accounted for approximately 62% of total revenue in the nine months to 30 September.
The company is heavily reliant on its US market share. More than 54% of Palantir’s annual revenue comes from its US operations, despite its success earning business in both the UK (12%) and France.
Palantir earnings preview
In other Palantir stock news, the software maker released its fiscal third-quarter earnings on 9 November.
For the three months ended 30 September, Palantir’s net loss narrowed to $102m from $853m a year earlier, as revenue grew 36% to $392m, from $289m in the third quarter of 2020.
Analysts were expecting adjusted earnings of 4 cents on revenues of $385m, according to figures widely available on financial news sites.
For the current fourth quarter, Palantir expects revenue of $418m and adjusted free cash flow in excess of $400m.
Palantir said revenue for the full year is expected to come in at about $1.53bn. Longer term, it expects annual revenue growth of 30% or greater for 2021 to 2025.
Analyst views on Palantir
Even though Palantir seems to have grabbed the attention of retail investors, some analysts are concerned that the company cannot sustain its current growth rate.
Keith Weiss, an analyst at Morgan Stanley, wrote in a note to investors back in August that he maintains an ‘underweight’ rating for the shares, primarily because of the “durability of this growth and potential to sustain an overall 30% growth rate going forward”.
Conversely, Wolfe Research analyst Alex Zukin raised his price estimate to $25 a share from $20 because of the company’s “solid” financial reporting.
However, Zukin also noted that he remains “on the sidelines” about Palantir “due to both valuation and what he sees as increasing difficulty around growth visibility”, according to a note published in August.
Palantir stock price prediction
Palantir’s stock consensus rating is a ‘hold’, according to MarketBeat data, based on eight analysts’ views. Two of these analysts rated Palantir stock as a ‘buy’, while three gave it a ‘hold’, with three analysts rating Palantir a ‘sell’.
The PLTR stock price target ranges from a high of $34 a share to a low of $19. The average analyst price target is $24, nearly $9 higher than its current price of $114.95 (as of 20 January), suggesting the stock has a potential for some upside.
Note that analysts’ predictions are often wrong. You should always conduct your own research before making any investment or trading decision. And never invest money you cannot afford to lose.
In terms of the long-term Palantir stock outlook, algorithm-based forecasting service WalletInvestor gives a "not so good" view. It sees the PLTR stock price opening 2023 at $15.25, and rising to $16.6 in five years.
Should I invest in Palantir shares?
The decision to buy Palantir stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to buy a Palantir stock:
Palantir’s quick and easy software update process and favourable government tech industry environment could contribute to further growth
Revenues grew 36% in the last quarter and the company is forecasting strong growth in the current quarter. Longer term, it expects annual revenue growth of 30% or greater for 2021 to 2025
It is collecting blue chip commercial clients on leading edge projects such as Merck
The average analyst price target for the shares is $24 nearly $6 higher than its current share price (29 December) suggesting the stock has a slight potential upside.
Should I sell my Palantir shares?
The decision to sell Palantir stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to sell a Palantir stock:
The company continues to lose money. Last quarter, Palantir incurred a 23% loss from operations.
The stock price is almost back to where it started the year.
It is still heavily reliant on US government contracts
The company carries a debt-to-equity ratio of 0.1, with more than $216m of long-term debt on its books.
Palantir is currently trading below both its 50-day and 200-day moving average, indicating that investors could be growing sceptical.
As with any stock, there is upside potential and downside risk. Palantir stock pleased investors with strong returns since its 2020 IPO. Its key selling point lies in its quick and easy software update process. The company could be set to thrive in the favourable government tech industry environment.
On the bear side, Palantir still isn’t profitable. Last quarter, the company incurred a 39% loss from operations. It carries a debt-to-equity ratio of 0.1, with more than $216m of long-term debt. The average price target is also not promising, seeing a downside for the stock.
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