Palantir Stock Down 77% but Has Potential to Double

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PLTR Stock Rallying on Bullish Expectations

The technology sector was the star of the stock market in July as the Nasdaq rallied by nearly 10% after its recent drop to 11,005. If the investor sentiment continues to improve, I expect technology stocks to ratchet higher.

In the meantime, it’s an opportune time to look at good technology stocks that have been devastated by the selling. That’s the case with former high-flying Palantir Technologies Inc (NYSE:PLTR), a provider of advanced data intelligence and cybersecurity solutions.

The company’s solutions are geared to the intelligence community in the U.S. and allied countries to deal with critical issues such as terrorism, natural disasters, refugee aid distribution, money laundering, health-care management, and cyberattacks. (Source: “Business Update: Q1—22,” Palantir Technologies Inc, last accessed July 28, 2022.)

But despite the company’s strong fundamentals, Palantir stock has been sideswiped by the technology stock selling.

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Currently trading at just over $10.00, PLTR stock is down by 65% from its 52-week high, down by 77% from its record-high $45.00 in January 2021, and down by 43% in 2022. As such, I currently see Palantir stock as a contrarian opportunity.

Strong Fundamentals Justify Higher PLTR Stock Price

Palantir Technologies Inc has delivered double-digit revenue growth over the last three years.

The company’s revenues have nearly tripled from $595.4 million in 2018 to $1.5 billion in 2021. The compound annual growth rate (CAGR) for this time span is an impressive 37.3%.

Analysts estimate that the double-digit revenue growth will continue at 28.8% to $2.0 billion this year, followed by 28.1% to just below $2.6 billion in 2023. (Source: “Palantir Technologies Inc. (PLTR),” Yahoo! Finance, last accessed July 28, 2022.)

Fiscal Year Revenues Growth
2018 $595.4 Million N/A
2019 $742.6 Million 24.7%
2020 $1.1 Billion 47,2%
2021 $1.5 Billion 41.1%

(Source: “Palantir Technologies Inc.” MarketWatch, last accessed July 28, 2022.)

The company’s valuation isn’t cheap, at close to eight times its 2023 revenue estimate, but Palantir stock deserves this high multiple.

As its revenues go higher, Palantir Technologies Inc will likely move toward profitability and positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Based on its strong showing in 2021, the company could have EBITDA income in 2023.

Fiscal Year EBITDA (Millions) Growth
2018 -$609.6 N/A
2019 -$564.2 7.5%
2020 -$1,160 -105.6%
2021 -$396.2 65.8%

(Source: MarketWatch, op. cit.)

On the bottom line, Palantir Technologies Inc’s generally accepted accounting principles (GAAP) earnings-per-share (EPS) loss improved to a four-year best in 2021. We could see GAAP profits from the company this year.

Fiscal Year GAAP Diluted EPS Growth
2018 -$0.35 N/A
2019 -$0.34 1.7%
2020 -$0.65 -92.0%
2021 -$0.27 58.6%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Palantir Technologies Inc produced profits of $0.13 per diluted share in 2021. This is expected to increase to $0.16 per diluted share in 2022 and $0.24 per diluted share in 2023. (Source: Yahoo! Finance, op. cit.)

While the company’s profitability is still low, it’s a start, and I expect the profits to continue ramping up.

Meanwhile, Palantir Technologies Inc’s free cash flow (FCF) turned positive in 2021, at an impressive $353.4 million. Achieving positive FCF is always a key milestone for technology companies.

Fiscal Year FCF (Millions) Growth
2018 -$54.4 N/A
2019 -$178.3 -227.7%
2020 -$265.2 48.7%
2021 $353.4 233.3%

(Source: MarketWatch, op. cit.)

What also impresses me about Palantir Technologies Inc is its solid financial situation. The company has a manageable debt of $267.7 million and a high amount of cash: $2.5 billion. This gives the company financial flexibility. (Source: Yahoo! Finance, op. cit.)

Significant Risk/Reward Opportunity

The below chart shows PLTR stock breaking down in December 2021 after the emergence of a death cross pattern. A death cross is a bearish indicator, but stocks tend to reverse out of it.

2022 has been dismal for Palantir stock, declining to a record low of $6.44 in May prior to mounting a 60% rally. I think there’s much more to come from Palantir Technologies Inc if the technology sector recovers.

PLTR stock recovered to its 50-day moving average and will target the 200-day moving average at $14.77, followed by congestion at $20.00–$27.50.

Chart courtesy of StockCharts.com

Analyst Take

Palantir stock is what I like to see in a growth stock. Its depressed price is compelling, given the company’s expected financial growth and the strong tailwinds in the cybersecurity segment.

After such disastrous price deterioration, the bottom for PLTR stock is likely near its recent low. When the market turns higher, Palantir Technologies Inc should be able to provide significant returns to its shareholders.