Summary: Data mining is still profitable, and Palantir has established itself as a giant company for both government agencies and commercial entities. Although the company is still in the speculative stage and its valuation is not cheap, it has promising growth prospects.
This makes it a reasonable bet for investors ready to wait for several years to see significant returns on their investment.
|Palantir Technologies Inc.|
|1555 Blake Street, Denver, CO, United States|
Palantir Technologies, listed as PLTR in NYSE, has enjoyed some positive and controversial media limelight, despite being a highly secretive company.
For example, the company hit the headlines when it was hired by the British National Health Service and the U.S. Department of Health to regulate data flow regarding coronavirus spread.
Palantir stock has had a bumpy ride in terms of stock performance, having experienced a huge run-up over the years that has now cooled off in the past couple of months.
But is it a good stock to invest in, considering that its stock price has doubled since its September 2020 IPO price listing? We will look into this shortly.
For now, let’s discuss Palantir in greater depth.
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What Does Palantir Technologies Do?
Palantir Technologies is a data mining company that uses two platforms (Gotham and Foundry) to collect and process information.
Gotham platform is more government-oriented as it serves U.S. government agencies, including the CIA, the military, the FBI, and ICE. It was released in 2008. There are plans by the U.S. government to make this its default data collection and processing system.
Foundry, on the other hand, collects and processes data for commercial companies. It’s a lighter version of the Gotham platform and was released in 2016.
The two software platforms analyze massive datasets to help government and corporations make sound decisions regarding their projects and future.
Both Gotham and Foundry are the central processing unit for customer data distributed across different teams and departments in the U.S. and other countries.
In other words, Palantir Technologies builds software platforms used by government agencies and large commercial companies to collect and process data.
In financial terms, Palantir Technologies has recorded an upward trend in its revenue base. Since its listing on the New York Stock Exchange (NYSE) in 2020, Palantir has rapidly expanded with its current market capitalization now standing at about $39B.
Now let’s discuss whether or not to invest in PLTR stock. (Learn how to buy stocks.)
There are several reasons Palantir Technologies is a good bet for long-term investors:
- Palantir’s revenue skyrocketed by 47% to hit $1.1B in 2020, with 77% of this growth attributed to government business while the rest was from its expansion in its commercial business
- The boost from government business resulted from the new and expanded contracts with the U.S. Army, the FDA, the U.S. Air Force, and the U.S. Department of Health. In the commercial aspect, the growth was majorly because of its contracts with big companies such as Rio, Tinto, B.P., and PG&E
- It's revenue in the first quarter (Q1) of 2021 grew to $8.1M, up from $7.9M in Q1, 2020. Overall, its revenue grew 49% YoY in Q1 to $341M. Revenue from government business accounted for $208M of this, while commercial contracts amounted to $133M
- Palantir projects a 30% increase in its revenue in 2021, while analysts expect its revenue to rise to 34%. The company is expected to remain unprofitable for the foreseeable future due to its massive investment in technologies
- Another area Palantir Technologies recorded significant growth in 2020 was the customer base that generated over $10M in annual revenue. The number increased by 50%. Also, its average per customer increased to $7.9M (41%)
- Its adjusted gross margin was 81% from 71%, while its adjusted operating margin hit a positive percentage (from -45% to 17%)
- Another positive prospect is the recent deals that the company has received, which are setting the base for many other contracts to come in the future. For example, Palantir is now a leading contractor for the Brexit border in the U.K. In addition, it has another major deal with the World Food Programme (WFP), a 2020 Nobel Peace Prize winner.
- Also, its smart move to accept Bitcoin as a form of payment means it's expanding its revenue base, and soon it could add cryptocurrency to its balance sheet.
All these factors demonstrate that Palantir Technologies is on the upward growth, especially in terms of revenue base.
Experts predict that the company might soon become profitable if it continues landing major deals with government agencies and large corporations, a trend that seems to go on for the foreseeable future.
Just like a coin, investment has two sides- the positive side that can result in profits, and the negative side that can lead to losses. Palantir has had its fair share of controversies that has played a major role in denting its image.
Here are reasons to be wary of investing in PLTR stock:
- The fact that Palantir has remained unprofitable (though it's improving), despite being in operation for 17 years is still a cause of concern. Superficially, its $1.2B loss in 2020 seem daunting, but the good thing is that this loss factors in stock-based compensation as well as one-time cost relating to its direct listing. Overall, with the current revenue growth, the company is expected to be profitable soon.
- Another area of concern is Palantir's reputational risk caused by 'unethical' government contracts. For example, the company suffered a backlash due to its association with the U.S. deportation scheme carried by ICE.
- Also, Palantir recently got a backlash from its employees, citing unethical practices by the company to investigate undocumented immigrants, and this may make commercial companies keep it at arms-length.
All these controversies and negative publicity coupled by the fact that it has remained unprofitable for over 17 years are the major areas of concern. However, there are good prospects that the company is on the right path.
It all boils down to your appetite for risk. The fact is that Palantir is a risky stock- you will be investing in a company that has not been profitable in the last 17 years.
On the positive side, the recent growth in revenue base and big contracts the company has landed in the recent past are evident enough that Palantir Technologies is on the upward trend.
Experts predict the company has a long way to go to be profitable but there is a possibility its stock price will rise significantly in the next couple of years.
Another thing, with the world becoming highly volatile due to civil unrest, pandemics, and increased terrorism risks, it is unlikely that there will be a shortage of the need for data services offered by Palantir Technologies, meaning more avenues for revenue generation for this company.
For those with a risk appetite, PLTR is a worthy bet for a risky portfolio.
Before you consider Palantir Technologies Inc., you'll want to hear this.
An award-winning analyst team just revealed what they believe are the 10 best stocks for investors to buy right now... and Palantir Technologies Inc. wasn't one of them.