Less than two months into life as a public company, Palantir Technologies (NYSE:PLTR) is proving investors love the shiny new object when it comes to data infrastructure and technology fare. PLTR stock is already up nearly 68% since its Sept. 30 initial public offering (IPO).
Colorado-based Palantir is classified as a technology stock in the software industry group, but this is not Snowflake (NYSE:SNOW). Even with its meteoric post-IPO ascent, Palantir hasn’t traded much above $17 and closed at $15.80 on Nov. 13, meaning its price tag is affordable and attractive to a broad swath of retail investors.
Palantir is alluring to novice investors for another reason. Its clients include government and intelligence-gathering agencies, giving it the look of a James Bond or Homeland stock. Hey, the CIA was an early investor in the firm. It’s not that sexy, but the company’s Gotham and Foundry platforms allow users to connect and integrate data stored in older legacy systems to improve applications and decision making. It’s not all black helicopter stuff as Palantir clients span less clandestine enterprises.
“Humanitarian response organizations are directing resources more effectively to communities affected by natural disasters,” says the company. “Prosecutors are building stronger cases against insider traders. Public health officials are tracking and containing the spread of deadly diseases.”
Be Picky with PLTR Stock
Last week, Palantir delivered its first earnings report as a public company, saying non-GAAP operating income was $73.1 million on revenue of $289.4 million. Previously, the company guided for operating income of $6 million to $8 million on sales of $278 million to $280 million.
Additionally, the software maker raised its non-GAAP operating income guidance for the year of $130 million to $136 million while forecasting sales of $1.07 billion to $1.072 billion. Previously projections called of operating income of $62 million to $72 million on revenue of $1.05 billion to $1.06 billion. In other words, Palantir delivered the beat-beat-guide scenario investors so love.
That wasn’t enough to assuage analysts skittish about PLTR stock multiples. Morgan Stanley analyst Keith Weiss downgraded the name to “equal weight” from “overweight,” saying the name’s surge has it trading at 22x enterprise value-to-revenue, skewing risk/reward in favor of the former.
Citi analyst Tyler Radke has a “neutral” rating on Palantir, noting that in order for the company to sustain current levels of revenue growth, it needs to attract new customers, which he says the firm isn’t yet proving particularly adept at.
Opportunities and Risks
To its credit, Palantir goes into some detail on its website regarding potential hot-button issues, such as safeguarding of personal data and civil liberties. However, at a time when so many investors, including those of the institutional variety, are prioritizing virtuous investing, some may have trepidation about a CIA-backed enterprise that makes it easier for governments to keep tabs on folks.
Still, there are opportunities. The novel coronavirus pandemic is increasing the need for contact tracing, an area where a company like Palantir has competencies. Additionally, the company’s shift from consulting operation to software is efficacious when it comes to margin growth. Now, it needs to convince the investment community it can effectively grow its customer base.
“Palantir is making progress in its three stages of customer development, in both growing revenue and expanding margin with new and existing clients,” according to Morningstar. “We believe this is attributed to the firm’s efforts to lower previous deployment challenges and broaden the use cases for its software.”
Still, it’s hard to ignore that at roughly $16, PLTR stock is somewhat extended here and that it would be far more attractive on a pullback to $13 to $14.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.