$Palantir Technologies Inc.(PLTR)$ With Russia's brutal invasion of Ukraine, the world has essentially entered a global conflict. While we may not see a hot war between nuclear powers any time soon, hopefully never, we will probably witness a great deal of saber-rattling and general hostility between NATO countries and Russia for a long time. Given Russia's miserable military failures in Ukraine, the rogue nation does not have a chance to prevail in a conventional conflict with NATO. Therefore, the state resorts to nuclear threats and perpetual cyber attacks on the West.
Palantir Technologies Inc. (NYSE:PLTR) is possibly the best antidote against the continuous Russian cyberthreat. Palantir provides:
- top-of-the-line cyber security
- data protection
- anti-terrorism
other security solutions to essential government agencies and numerous private enterprises.
Palantir's stock has been punished relentlessly during the recent growth scare and tech meltdown. Its share price is now down by nearly 80% from its all-time high achieved early last year. Palantir's stock looks relatively inexpensive, in light of the company's rapid growth rate and exceptional earnings potential. As the company expands its dominant position in its government segment and continues developing its commercial businesses, Palantir's revenues and EPS should grow extensively in the coming years, leading to a much higher stock price as the company advances.
We see Palantir's epic fall from its September 52-week high top of nearly $30 to below $10 in February. After a month-long recovery, the stock is back down near the $10 range. The renewed Fed-induced growth scare has contributed to the recent wave of selling, bringing Palantir's stock back down into technically oversold territory. Palantir's RSI is close to 30 again, illustrating oversold technical dynamics. Moreover, the full stochastic is down to 5, a level often associated with a momentum shift, implying a change towards a more positive momentum is approaching.
Palantir - Analyzing The Ukraine Russia Conflict
Palantir's software provides analysis of the conflict unfolding in Ukraine and other regions around the globe, assisting the U.S. government and military. Palantir has several distinct advantages over its counterparts, but one significant edge is that it has grown much closer to Washington than other IT firms. Therefore, Palantir can continue generating revenue growth as it perpetually receives generous government contracts. Moreover, as the Russia threat widens, Palantir's business should continue benefiting from the increased cyber security threats and other possible conflict scenarios.
Palantir's customers include the U.S. Navy, Army, CIA, IBM (IBM), Amazon (AMZN), Airbus, and many others. With the Russian threat permanently elevated now, Palantir should continue benefiting moving forward. The Western world is essentially at war with Russia, sanctioning the rogue nation and providing extensive aid to Ukraine. Russia is fighting back by implementing state-sponsored cyber attacks.
Russia's State Powered Cyber Threat
Russian state-sponsored cyber attacks have compromised IT networks, extracted sensitive data from IT and operational technology networks, and disrupted critical industrial control systems by deploying destructive malware. The Russian threat is genuine, and Palantir may be the best-positioned cybersecurity firm to take advantage of the unfolding conflict. Palantir has continuously illustrated high growth, but we may see an acceleration moving forward.
Last Quarter
In Q4, Palantir reported 34% revenue growth, including 47% in commercial and 26% in its government segment. Its U.S commercial revenue growth spiked by 132%, and the company reported 80% gross margins. With the Russian conflict intensifying and likely to persist for a long time, Palantir's growth should continue to skyrocket, especially in the U.S.'s commercial revenue segment.
2021 Full Year
The company's full-year results were also awe-inspiring. We saw total revenue growth increase by a whopping 41% YoY. U.S. commercial revenues expanded by more than 100% YoY. GAAP gross margin came in at 78%, and the company's adjusted operating margin was 31%, or $473 million last year. We see that Palantir has remarkable growth momentum coupled with enormous earnings potential, a dynamic that should enable the company to become highly profitable over the next several years. Furthermore, the company expects to see 30% revenue growth or higher through 2025.
Is Palantir Cheap?
Whether Palantir is cheap or not is a subject of some controversy. However, we see that the company has enormous potential. Palantir may be the best at what they do, and that is saying something. There is a reason why the U.S. government chooses Palantir in many cases and not another IT firm. Palantir has earned the trust and the approval of the U.S. government, which is essentially a gold seal for the company. Now Palantir is rapidly expanding its commercial businesses, and there is a reason why top companies are choosing Palantir.
Customer Count
In 2021, Palantir grew its customer count by a staggering 71%. This dynamic illustrates that more and more firms are choosing to go with Palantir's data analytics and security solutions. Moreover, we should see substantially higher revenues for Palantir in the future, and the company will probably become increasingly profitable as we advance.
Revenue Growth
We should continue seeing at least 30% revenue growth for several years. Therefore, in 2024 Palantir's revenues should be around $3.4 billion. Additionally, the company expects 30% revenue growth to persist in 2025, so we may see about $4.4 billion in revenue in 2025. The company's valuation is approximately $24 billion today, illustrating that Palantir is trading at around 5-7 times 2024-2025 sales estimates. This valuation is relatively inexpensive for a dominant, high-growth, market-leading company in Palantir's position. Furthermore, due to the growing Russia threat, we may see a boost in demand for Palantir's services, leading to higher revenues.
EPS Growth
Palantir is in high growth mode, so the company will not be highly profitable now. However, Palantir is already providing income and should become increasingly prosperous. Palantir has a highly profitable business, delivering 80% gross margin and 29% operating margin last quarter.
Palantir Risks
Despite my bullish outlook for Palantir, market participants should consider several potential risks associated with this investment. While the growth story is strong at Palantir, shares are not cheap by traditional metrics. Furthermore, the company's earnings are still minimal and may not increase as much as I envision. Moreover, if the company's growth picture were to turn less bullish, the stock could head in the wrong direction. For instance, if Palantir lost favor with the government or had a data breach, the stock could experience a notable decline. Please consider these and other risks carefully before investing in Palantir.
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