Recently, actions of Palantir (NYSE:PLTR) fell more than 10% after posting its third quarter results November 9. After a low in mid-November of last year, PLTR stock hit an all-time high of $ 45 at the end of January. Now the stock is hovering around $ 22, down about 8% year-to-date (YTD).
A big data group, Palantir is best known for its cooperation with ggovernment agencies for counterterrorism, intelligence gathering and military purposes. However, management is now also expanding to broader business segments, such as healthcare and manufacturing.
As businesses around the world increasingly embrace digitalization, artificial intelligence (AI) and data management and security are becoming extremely critical. According to research, the global big data market will grow by more than $ 247 billion “at nearly 18% of the CAGR in 2021-2025”. Appen (OTCMKTS:APXYY), an Australia-based data group, also recently highlighted “a significant year-over-year increase in AI budgets, ranging from $ 500,000 to $ 5 million per year, up 55% compared to last year”.
Clearly, then, investors should pay close attention to growth companies focused on big data and analytics, such as Palantir. Despite the current bearish sentiment, long-term investors may view the recent drop in PLTR stock as an opportunity to buy the stock price. Let’s take a closer look.
PLTR actions and recent gains
Launched in 2003 partly by Pay Pal (NASDAQ:PYPL) co-founder Peter Thiel, Palantir provides large-scale data management solutions. It has three main platforms: Palantir Gotham, Palantir Metropolis, and Palantir Foundry.
Recently issued management Third quarter financial indicators that exceeded expectations. For the period, revenue grew 36% year-over-year (YOY) to $ 392 billion. In addition, adjusted net income was $ 82.1 million, up approximately 51% from the prior year quarter. Meanwhile, non-GAAP earnings of 4 cents per diluted share were unchanged year-on-year. Finally, cash and cash equivalents ended the quarter at $ 2.33 billion, while adjusted free cash flow (FCF) was $ 119 million, implying a 30% margin.
Going forward, the company expects revenue growth of 40%, reaching $ 1.53 billion. The FCF’s forecast has also been raised from $ 300 million to over $ 400 million. COO Shyam Sankar said the following during the earnings call:
“I wanted to highlight three themes. First, we see an increase in sales in defense industrial base as a customer […] Second, our work in the automotive industry, and more generally, mobility is developing […] And finally, our work in the health sector is exploding.“
Yet despite management’s optimistic tone, investors in PLTR stocks have expressed concern about slowing growth in government contracts. Because of this, they decided to take money off the table.
Growing business partnerships
Thus, investors reacted negatively to the slowdown in public markets. However, this is not all bad news. In fact, in reality, the management of Palantir has developed the business side of the company. As a result, US trading revenues grew 103% year-over-year in the third quarter.
Earlier this year, IBM (NYSE:IBM) and Palantir have launched Cloud Pak for data together, a platform that helps businesses prepare their data for AI applications. Then in September, Palantir engaged to an equity investment with real-time geospatial intelligence technology platform Black sky (NYSE:BKSY). And finally, last month the company added a blockchain data analytics company Elementus to his Foundry for Builders Program (among others) as well as published a new software for the digital cryptocurrency market.
Management expects this software to contribute to revenue. In fact, when calling the results, Sankar commented on the following:
“We will give [crypto companies] Credible LBC [anti-money laundering] platforms to allow them to go hand in hand and beyond with legacy gamers. we will deliver [regulatory] compliance so they can focus on disruptions. And of course, they are welcome to pay us in crypto.
If anything, it all helps to justify to buy PLTR stock.
Add Palantir to Portfolios
Among 10 analysts interrogates to CNN Money, the PLTR share has a “hold” rating. Additionally, the consensus is for a 12-month median price target of $ 24.50, implying a potential upside of 9% from the close on November 17.
Right now, the 12-month price range is currently between $ 18 and $ 31. Therefore, if you are not currently an investor in PLTR, you may want to consider buying down, especially if the stock is trending towards $ 21 or below.
Alternatively, interested readers might consider purchasing an exchange-traded fund (ETF) that offers exposure to PLTR stock as a holding company. Several examples are ETF Innovation ARK (NYSEARCA:ARKK), the Defiance Next Generation Big Data ETF (NYSEARCA:BIG), the Renaissance ETFs (NYSEARCA:Initial Public Offering), the Ultra ProShares technology (NYSEARCA:ROM) and the ETF on the social sentiment of VanEck vectors (NYSEARCA:BUZZ).
Finally, readers experienced with options might also consider writing guaranteed cash put options. They would be appropriate if you are slightly bullish or neutral on the PLTR stock. The sale of cash guaranteed put options generates income from the premium received.
For example, PLTR stock recently traded at around $ 22.55. One potential trade would be to sell the $ 22 puts options that expire on January 21, 2022. And the current option premium is $ 1.55. Therefore, the maximum return to the seller on the expiration day would be $ 155, excluding commissions and trading fees.
If the selling seller is given the option, the maximum risk is similar to that of holding shares but partially offset by the premium received.
The basics on PLTR stock
Currently, PLTR shares are trading at 29.27 times sales and 19.92 times book value. In addition, the forward price-to-earnings (P / E) ratio currently stands at 149.45 times, according to In search of the alpha. While these measures involve rich valuation, they are not uncommon for action from the rapidly growing cybersecurity industry.
For comparison, here’s how some price-to-sales (P / S) ratios of several other software and cybersecurity names fare. At present, Cloudflare (NYSE:REPORT) is 110.81 times, Crowd strike (NASDAQ:CRWD) is 52.85 times, Datadog (NASDAQ:DDOG) to 66.39 times and Snowflake (NYSE:SNOW) at 121.81 times.
As a high growth company, Palantir shares are volatile. Additionally, if Wall Street worries even more about income levels in the coming months, the negative sentiment could likely continue. Nonetheless, any further decline in the stock of PLTR should be seen as an opportunity to buy it in the long term.
OAt the date of publication, Tezcan Gecgil had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Tezcan Gecgil has worked in investment management for over two decades in the US and UK. In addition to her formal graduate studies in the field, she has also passed all 3 levels of the Chartered Market Technician (CMT) exam. His passion is for options trading based on the technical analysis of fundamentally sound companies. She particularly enjoys setting up weekly covered calls to generate income.