What’s The Deal With Palantir Ahead Of Earnings?
Great Stuff, I don’t remember you covering my fave stock, Palantir Technologies. Do you have a take on it?
— Lee S.
Thanks for writing in, Lee!
So, you don’t remember me covering Palantir Technologies (NYSE: PLTR)? Funny, I don’t remember me covering Palantir Technologies either. Great Stuff being a daily financial rag, I cover a lot of stocks, Lee. It’s hard to keep track sometimes.
According to The Great Stuff Team — I love those guys! — I have, in fact, covered Palantir a couple of times in the past year. OK, two times:
Clearly, I’ve underserved this nerdy spy-versus-spy company. It’s time to remedy this situation, I think. So, Lee, here it comes…
Palantir: One Spyware To Rule Them All
For those who don’t know, Palantir Technologies is an AI software company that derives its name from the palantiri … i.e., those seeing stones that Saruman used in The Fellowship of the Ring.
Anywho, Palantir specializes in building and deploying data analytics software for the U.S. intelligence community. You know: the CIA, the FBI, the NSA and Homeland Security.
Before you get Hall & Oates vibes, Palantir’s private eyes aren’t watching you. They’re watching your data.
Palantir’s “spy” software uses AI to manage massive volumes of sensitive intelligence data.
Its flagship software is called Project Gotham, and it’s definitely worthy of the Batman reference.
Project Gotham enables U.S. government operatives to identify patterns in large data sets, makes the handling and sharing of these large data sets between intelligence operatives easier and facilitates faster real-world responses to threats identified within this data.
But a company cannot live off U.S. government contracts alone. I mean, it can … but it’s a lonely existence dependent upon which political party is in office. And that’s no way to go through life, son.
In its wisdom, Palantir developed Palantir Foundry for the public sector. Foundry performs many of the same functions as Gotham, allowing users to compile, integrate and analyze huge tracts of data. As we all know, data is the new oil.
Data is the lifeblood of the new economy, and data analytics is big-time business. And if Palantir’s software is good enough to crunch through veritable mountains of intelligence data for the U.S. spy network, it’s good enough for corporate America.
The Hunt For Palantir Profits
Ahead of the open on Tuesday, November 9, Palantir Technologies will enter the earnings confessional.
Analysts are expecting a profit of $0.03 per share on revenue of $385 million. For those of you who like percentages, that’s a 55% decline in earnings from last year and a 33% spike in revenue.
Now, some of you might be put off by that 55% drop in earnings … but here’s the thing: Growing companies like Palantir are going to see drops in earnings like this.
You need to spend money to make money, especially when you’re in a competitive field like AI and Big Data. And that’s what Palantir is doing: spending on growth.
That fact is evident in Palantir’s revenue, which has surged more than 123% in the past four years.
Until now, the vast majority of this growth has come from U.S. government contracts. Last quarter, Palantir reported that government revenue rose 66% to $232 million, while commercial revenue added just 28% to $144 million.
But Palantir is rapidly adding new commercial customers, with 20 companies jumping on the bandwagon in the second quarter. What’s more, second-quarter bookings were rather impressive, rising 175% from 2020 to $925 million.
I expect Palantir’s commercial revenue to rise once again this quarter, possibly by more than analysts expect … especially since these same analysts have underestimated Palantir’s growth in three of the past four reporting periods. It doesn’t take a spymaster to figure this one out.
Now, Great Ones, it’s time to address the elephant in the room. Palantir shows solid revenue growth in a red-hot sector of the market. Y’all know I like technology stocks, and AI is the literal future of practically all software used to drive that technology.
So, why haven’t I covered Palantir Technologies more?
Two words: meme stock.
For most of its publicly traded life, PLTR stock has been a meme stock. The shares were quite popular on Reddit’s WallStreetBets forum due to the large number of short sellers targeting PLTR stock.
Short interest is still a major factor for PLTR shares, with about 11% of the stock’s float — or shares available for public trading — currently sold short.
The short-to-float ratio rests at 5.17% — which basically means that at PLTR’s average daily trading volume, it would take more than five days to buy back all those short PLTR positions.
What does all of that mumbo-jumbo mean? It means there’s a lot of fuel for a potential short squeeze. In layman’s terms, PLTR could rally simply on the fact that short sellers have to quickly buy back their positions to avoid heavy losses.
Typically, you need something to spark a short squeeze, like earnings or a product launch or some similarly big positive event. Meme stock traders like those over on WallStreetBets try to force the issue by buying large quantities of a stock to push short sellers into covering their positions.
The thing is, PLTR isn’t quite a meme stock anymore.
According to SwaggyStocks.com, mentions of PLTR stock have been way down on WallStreetBets over the past month. Mentions are also down across search results, social media mentions, message board posts and financial media articles.
In fact, Palantir appears to have lost all its meme stock appeal for the time being. Sure, there are likely some “hodlrs” out there still looking for that big short-covering spike.
But the thrill is gone for the meme stock community with PLTR. This, Great Ones, is excellent news for regular investors like us.
It means that PLTR stock is trading more closely to its true valuation and not on the whims of some hyped-up, sugar-rushing meme trader looking to “stick it to the man.” You know who you are…
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Quantum Of Palantir
Now, to wrap all this up, it’s time to revisit Lee’s question: Do you have a take on it?
My take is that Palantir has grown considerably less risky as a potential investment now that the meme stock crowd has largely moved on.
The company still relies heavily on U.S. government contracts for its main revenue source, which is a bit concerning for obvious reasons. After all, government revenue is a nice solid foundation to work from, but it can only grow so much.
The key to Palantir’s continued success is commercial revenue. Commercial adoption of Palantir’s AI software is coming along nicely, with revenue growth averaging more than 33% per quarter.
What’s more, there’s a lot of room for growth in PLTR’s stock price. The shares are down more than 40% from their all-time highs.
This all sounds well and good, but it’s this technical picture that gives me pause. PLTR stock has traded between $20 and $30 since February. The shares are above their 50-day and 200-day moving averages, which is a good thing for technical traders.
However, $30 remains a significant hurdle. Remember, technical traders and trading algorithms really like round numbers as inflection points for a stock’s price.
What this means is that $30 could be a near-term top for PLTR stock if next week’s earnings aren’t quite impressive enough. Given how 2021 has gone on the earnings front, I’m hesitant to guess what “impressive enough” even means right now.
That said, if Palantir’s earnings are “impressive enough,” $30 is only about 13% above the stock’s current trading range. That’s just a hop, skip and a jump for a strong post-earnings rally. And, if $30 falls, those remaining meme stock hodlrs might just get that short-squeeze they’re looking for.
The bottom line is that PLTR stock has an amazing amount of potential upside if you can stomach the risk involved. It’s just as likely that PLTR stock will fall back toward $20 after earnings as investors take profits — even on a good earnings report.
So, to formally answer your question, Lee: I like PLTR stock, and I think the company has a bright future, assuming it can convince commercial companies to adopt its software. However, there are short-term risks that make me wonder where the best entry price lies.
If you’re a long-term buy-and-hold investor with patience, PLTR could be right up your alley. However, if you’re worried about PLTR’s volatility, meme stock status or the broader market, you might want to wait until after Palantir reports earnings next week before you decide.
But I know you, Great Ones — you want in on the whole data-analytics hustle right here, right now! Well, you still have to wait until the market opens next week to buy anything … so check this out.
What you’re looking for is “Digitarium.”
Right now, hardly anyone knows about this trend. But in just a few short years, “Digitarium” will become as common as the internet. While most Main Street Americans have no idea how big this tech will be, 916 of the Fortune 1000 companies are going “all-in.”
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Editor, Great Stuff