Is Palantir (PLTR) a Buy Now?

Is Palantir (PLTR) A Buy Now?

8/8/2023

$PLTR dropped ~5%+ the day after its earnings call on Monday.

15 analysts updated their price target in the last 6 months,
Avg. price target is 34% lower than the current price,
Avg. recommendation is HOLD,
Short interest is ~7% (as of 7/25)

Is the price drop a chance to buy, or is the meme hype subsiding, and expectations adjust to reality? Let's find out!

Unexpected Stuff In PLTR Earnings

Announced a $1B share repurchase program.

Just launched its LLM product, Artificial Intelligence Platform (AIP). More to come about this product at the September conference.

One of the best storytellers in the market. Always trend-forward, relevant, and exciting.

Subtle jab at AMD, mentioning PLTR teaches people how to use LLMs instead of writing neat poetry. ;)

PLTR's Top Line

Revenue was up 13% Y/Y to $533M.
Commercial revenue up 10% Y/Y.
Government revenue up 15% Y/Y.

Investors want to see that commercial segment grow rapidly. This Q, the growth rate was the opposite.

Score: Good -- Solid Q/Q revenue growth since Q1 2019

PLTR's Profitability

Steady 80%+ adj. gross margin for several quarters,
Three quarters of GAAP profitability,
Guidance for profitability in Q3 & Q4 too,
Focused on S&P inclusion, so expect to stay profitable at all costs.

Score: Fair -- small, but good to see the focus and persistence.

PLTR's Balance Sheet

~ $3.2B+ cash & cash equivalent
vs. No significant debt

Score: Good

PLTR's Free Cash Flow

Positive Free Cash Flow, thanks to positive operating cash flow, which in turn is the result of smaller operating loss.

Score: Fair -- Good direction and monitoring for expansion

PLTR's Valuation Feasibility

P/S of 19X
Forward P/E of 82X
The # of shares going up (diluting customers) justifies buying $1B shares.

To reach 19X sales, it requires 34% annual revenue growth in the next ten years. That's not realistic, judging from its revenue growth history.

So to justify the current valuation, it has to keep that profit margin or FCF growing by quarter.

Score: Bad -- watch for profit margin expansion or free cash flow growth faster than it has been.

Notable Investors

Regardless of the valuation, ARKK ETF picked up more shares of PLTR after the earnings, indicating their models expect much faster revenue growth in coming years due to generative AI and AI demand.