Shares of leading software platform Palantir Technologies (PLTR) fell recently after reporting its first quarter earnings report. However, the stock has risen slightly in the past five days, thanks to new government contracts signed by the company. Given its negative profit margins and rich valuation, will the stock be able to sustain this upward trajectory in the near term? Read more to find out.
Palantir Technologies Inc. †PLTR) develops software platforms for the US intelligence services. The software services are designed to assist in counter-terrorism investigations and operations. The company’s popular software platforms are Palantir Gotham, Apollo, and Palantir Foundry. However, PLTR has an ISS Governance QualityScore of 10, indicating high governance risk.
Shares of PLTR fell about 55% year-to-date and 34% last month. PLTR’s mixed last quarter results coupled with bearish market sentiment has caused the stock to plummet during this period. However, the stock has recovered in the past five days thanks to new government contracts.
Here’s what could affect PLTR’s performance in the short term:
Mixed financial administration
PLTR’s total revenues increased 31% year-over-year to $446 million in the first quarter of 2022 ended March 31. This can be attributed to a 136% increase in US commercial revenues and a 16% improvement in government revenues.
However, the operating loss was $39.44 million while the EBT loss was $99.36 million. The net loss was $101.38 million, which translates to a loss of $0.05 per share. Operating cash flow was down 69.6% year-over-year to $35.48 million.
Mixed growth story
PLTR’s 12-month revenues are up 36.7% year-over-year. The company’s 12-month free cash flow improved 79% year-over-year, while its 12-month total assets grew 30.9% year-over-year.
However, PLTR’s 12-month EBITDA declined 73.4% year over year. In addition, 12-month residual earnings decreased 73.8% from the same period last year.
In terms of forward non-GAAP P/E, PLTR is currently trading at 43.88x, 152.8% higher than the industry average of 17.36x. The forward EV/EBITDA multiple of 20.75 is 82.4% higher than the industry average of 11.38.
In addition, PLTR is currently trading 7.55 times its forward sales, 190% higher than the industry average of 2.60. The forward Price/Cash Flow and Price/Book ratios of 37.24 and 5.57 are comparable to industry averages of 6.18 and 3.71 respectively. In addition, the PLTR forward EV/Sales multiple of 5.77 is 120.3% higher than the industry average of 2.62.
Consensus rating and price target indicate upside potential
Of the 10 Wall Street analysts who rated PLTR, two rated it buying, five rated holding, and three rated selling. The median 12-month price target of $11.28 gives a 53.7% potential upside from yesterday’s closing price of $7.34. The price targets range from a low of $6.00 to a high of $16.00.
POWR ratings reflect uncertainty
PLTR has an overall rating of C, which translates to Neutral in our patented POWR ratings system. The POWR Ratings are calculated taking into account 118 different factors, with each factor being optimally weighted.
PLTR has a C for Momentum and Quality. The stock is currently trading slightly below the $11.75 50-day moving average, justifying the Momentum figure. In addition, PLTR’s 12-month gross profit margin of 78.16% is 61% ahead of the industry average of 48.55%. The company’s negative net profit margin and ROE justify the quality grade.
Of the 26 stocks in the F-rated Software – SAAS industry ranks PLTR at number 16.
In addition to what I’ve mentioned above, check out PLTR ratings for sentiment, stability, value, and growth here†
With an increasing need for cybersecurity and national intelligence investigations amid mounting geopolitical tensions between Russia and the West, PLTR is expected to witness robust revenue growth in the coming quarters. However, investors should wait for PLTR’s profit margins to improve before investing in the stock.
How does Palantir Technologies (PLTR) compare to its competitors?
While PLTR has a C rating in our proprietary rating system, you might want to consider looking at its industry peers, MiX Telematics Ltd. †TO BLEND), The Sage Group plc (SGPYY), and Descartes Systems Group Inc. †DSGX), which have a B (Buy) rating.
PLTR shares traded at $8.17 a share Friday morning, up $0.83 (+11.31%). Year-to-date, the PLTR is down -55.13%, compared to a -15.28% rise in the benchmark S&P 500 index over the same period.
About the author: Aditi Ganguly
Aditi is an accomplished content developer and financial writer with a passion for helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach to analyzing stocks.