Is Palantir Stock’s 20% Drop An Opportunity To Buy?

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Big data and analytics player Palantir Technologies stock fell by over 20% in Monday’s trading after the company published a mixed set of Q1 2022 results, with its outlook for Q2 also falling short of estimates. While quarterly revenues were better than expected, rising 31% versus last year to $446 million, adjusted earnings came in at $0.02 per share, missing estimates. While the commercial business continued to fare well, with revenue rising 54% to $205 million, driven by growth in the U.S., investors appear to be concerned about a slowdown in Palantir’s government business, which saw sales rise just about 16% year-over-year to $242 million, marking a slowdown from 80% plus growth levels in Q1 2021. For Q2, the company expects base case revenues of $470 million, which marks a growth of about 25%. The number was below the consensus estimate, although the company has indicated that there could be an upside to this, given the ongoing geopolitical tensions.

With the recent sell-off, Palantir stock has now fallen by over 75% from its 2021 highs and is now trading at just about $7.50 per share, which is below its 2020 IPO listing price. However, we think that the risk to reward tradeoff for Palantir looks very compelling at current levels. At the current market price, PLTR stock trades at just about 7.5x consensus 2022 revenue and just about 6x 2023 revenue estimates, which is actually below the broader software sector despite the company’s above-average growth. While the earnings miss and weaker than expected guidance indicate that the company is seeing some potentially transitory headwinds in the current environment, Palantir’s long-term outlook remains intact. The company continues to project annual revenue growth of 30% or greater through 2025, and there could be an upside to this considering the longer-term geopolitical ramifications of the Russia-Ukraine conflict, and also as artificial intelligence plays a greater role in the economy. Palantir has also reiterated its full-year adjusted operating margins guidance of 27% for the full year. Although this number is below the 31% margins seen in 2021, this is largely due to Palantir’s efforts in bolstering its sales and technical headcount for its commercial platform, a move that could drive growth in the future.

We estimate Palantir Valuation at about $15 per share, translating into a potential upside of over 100% from the current market price. Check out our analysis of Palantir Revenue for more details on Palantir’s key revenue streams and business model.

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