Summary
- Palantir's stock price has been under $10 for most of the May-July period, and it is currently trading at one-third of its 52-week peak.
- PLTR recorded an all-time low share price of $6.44 during intra-day trading on May 12, 2022, as the company's Q2 2022 guidance released on May 9, 2022 disappointed the market.
- Palantir is a Buy now, because its 2H 2022 revenue should beat market expectations, and rising geopolitical tensions are a key driver of PLTR's medium-to-long term growth.
Michael Vi
Why Is Palantir Stock Near All-Time Lows?
Palantir debuted on the New York Stock Exchange on September 30, 2020 with its shares closing at $9.50 at the end of the trading day. PLTR's last done share price was $9.84 as of July 22, 2022, and the company's shares have been mostly trading below the $10 mark since early-May 2022, a sight last seen in late-2020.
PLTR's Share Price Chart Since Listing
Seeking Alpha
Palantir set a new historical trough stock price of $6.44 during the May 12, 2022 trading day. Even though, the company's shares have risen from the lows, PLTR's closing price as of July 22 is still only a third of its 52-week high share price of $29.29.
It isn't a big surprise that PLTR's shares are trading at such lows. The market is expecting Palantir to deliver more modest top line expansion while taking more time to generate positive GAAP earnings in the current weak economic environment. The sell-side's consensus financial forecasts obtained from S&P Capital IQsuggest that Palantir's revenue growth will moderate from above +40% for both fiscal 2020 and 2021 to below +30% for the FY 2022-2024 period. At the same time, PLTR is projected to stay loss-making on a GAAP basis in FY 2022 and FY 2023 at the very least.
In uncertain times like these, investors tend to favor profitable companies boasting predictable (albeit relatively lower) sales growth. This also means that companies like PLTR which are still unprofitable on a GAAP basis and are witnessing revenue growth deceleration will be penalized by the market. In that respect, Palantir's consensus forward next twelve months' Enterprise Value-to-Revenue multiple has compressed from as high as 50 times in early- 2021 to under 10 times in the last three months as perS&P Capital IQ.
PLTR Stock Key Metrics
PLTR's below-expectations 2Q 2022 management guidance revealed as part of the company'sQ1 2022 financial resultsreleased on May 9, 2022 was the key factor that led to Palantir's shares falling to a historical low on May 12, 2022.
Palantir guided for the company to achieve a top line of $470 million and a non-GAAP adjusted operating profit margin of 20% for the second quarter of fiscal 2022. This implies that PLTR's revenue growth is forecasted to slow from +31% YoY in Q1 2022 to 25% YoY in Q2 2022, while its non-GAAP operating margin is estimated to contract from 26% to 20% over the same period.
Moreover, PLTR's guided Q2 2022 revenue and operating profit margin were -4% and -6.8 percentage points below the market's consensus projections, respectively as perS&P Capital IQ.
Is Palantir Stock Expected To Rise Again?
I hold the view that Palantir's stock is expected to rise again when the company's Q3 2022 and Q4 2022 financial performance exceeds market expectations.
The market is skeptical about PTLR's ability to deliver on its full-year FY 2022 top line growth guidance of +30%. In comparison, the sell-side analysts' consensus sales expansion estimate for Palantir is lower at +28.7%.
There are two key reasons why I think Palantir can achieve revenue beats for the second half of the year.
Firstly, PLTR should see its government revenue accelerate again in 2H 2022. The company's YoY government revenue growth decelerated from +26% in the fourth quarter of 2021 to +16% in the first quarter of 2022. Q1 2022 represented the fifth straight quarter running that Palantir's government revenue growth has slowed, but the trend is set to reverse. At its Q1 2022 results briefing, PLTR indicated that it is "already seeing Q2 U.S. government revenue reaccelerate" considering that "a new budget has been passed" in March 2022. A new US federal budget removes the uncertainty over the funding of future government projects, so it is natural to assume that PLTR's government revenue growth momentum will pick up pace in the second half of the year.
Secondly, the outlook for Palantir's commercial business is also good based on a review of the company's new customer additions for the recent quarter, given that there will be a time lag between new client wins and actual revenue recognition. PLTR's number of commercial clients grew by +207% YoY from 60 in Q1 2021 to 184 in Q1 2022, as per the company's recentquarterly results presentation slides. In the first quarter of this year alone, PLTR secured 37 new commercial clients (net of customers who left), which was equivalent to a very strong +25% QoQ growth. Palantir also disclosed at the company's first-quarter investor call that it "closed a renewal with a major U.S. Fortune 100 company for over $150 million" in April 2022. In other words, PLTR's commercial business is doing well, it is retaining key clients while adding new customers at a healthy pace.
Where Is Palantir Heading?
Palantir's shares should head north over the intermediate to long run, as investors appreciate the value of owning PLTR as a hedge against geopolitical tensions and conflicts.
PLTR emphasized at its earlier Q1 2022 results call that "there's a wide range of potential upside above our guidance, including those driven by our role in responding to developing geopolitical events." The company's bullish view is validated by recently announced contract wins.
Palantir isn't just seeing more opportunities coming from US defense and government agencies.
Notably, PLTR secured a new $12.5 million deal from the United Kingdom's Ministry of Defense, according to a May 6, 2022 Bloomberg article, and it is reasonable to assume that rising geopolitical tensions in Europe following Russia's invasion of Ukraine had compelled the UK Ministry of Defense to spend more which benefited Palantir. Separately, Palantir highlighted on its company's Twitter page on June 2, 2022 that its CEO had a meeting with Ukraine's president to discuss "the pivotal role of software to Western security." It certainly seems that Palantir could win more defense-related contracts in Europe in the future.
As a reference, PLTR generated more than half or 57% of its fiscal 2021 revenue from the US markets, with key European markets, the UK and France, contributing a relatively lower 11% and 6% of its top line last year, respectively. Going forward, Palantir's actual top line growth could surpass expectations thanks to higher-than-expected sales contribution from Europe, especially in the area of defense.
Is PLTR Stock A Buy, Sell, or Hold?
I rate PLTR stock as a Buy. Faster-than-expected top line expansion in 2H 2022 and a larger-than-expected number of defense-related contract wins driven by geopolitical issues should be the key positive re-rating catalysts for Palantir.
Source: Seeking Alpha
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