IPO Analysis: Is Palantir Technologies a Good Buy Right Now?
22 March 2021 - 9:55PM
Finscreener.org
Since the start of 2020, several companies have gone public via
an IPO (initial
public offering). These companies enter the equity markets to
raise capital and fund their growth initiatives. So, it gives
investors an opportunity to buy shares of a high-growth company and
benefit from exponential gains over the long-term.
Here, we look at one such recent IPO- Palantir Technologies
(NYSE:
PLTR) and analyze the company to gauge if it’s a good stock to
buy right now.
Palantir Technologies- An overview
Palantir Technologies builds and deploys software platforms for
the intelligence community in the U.S. it assists various
organizations in counter-terrorism investigations and related
operations. Palantir Gotham is a software platform for government
operatives part of the defense and intelligence verticals.
The platform allows users to identify patterns within datasets
that range from signals intelligence sources to reports from
confidential informants. It also helps operators plan and execute
real-world responses to threats identified within their
platform.
Palantir Foundry is another platform that creates a central
operating system for organizational data and allows users to
integrate and analyze this data.
Recent quarterly results
In the fourth quarter of 2020, Palantir reported $322 million in
sales and earnings per share of $0.06. Wall Street forecast the
company to report revenue of $300 million and earnings of $0.02 in
the December quarter.
It closed 21 deals worth at least $5 million and 12 contracts
worth at least $10 million in Q4. Palantir confirmed revenue from
the government business accounted for $190 million in sales. It
closed deals with several large-cap companies including BP (NYSE:
BP),
Rio Tinto (NYSE: RIO),
and PG&E (NYSE:
PG). The company also
secured a major deal with IBM (NYSE:
IBM) earlier this year.
In 2020, the company’s sales rose by 47% year over year to $1.1
billion. During its earnings call, Palantir’s management forecast
revenue growth of at least 30% in 2021, and it expects to touch $4
billion in annual sales by 2025.
Its average revenue per customer soared 41% to $7.9 million in
2020. Further, the average revenue from the top 20 clients climbed
34% to $33.2 million. We can see Palantir has successfully managed
to cross-sell additional services to customers.
Palantir’s revenue growth has allowed it to expand the
bottom-line at a fast clip. Its gross margins stood at 72% in Q4 of
2019 and it rose to 84% in Q4 of 2020. Similarly, the company’s
contribution margin rose from 33% to 62% in this period.
Comparatively, it reported an operating margin of -31% in Q4 of
2019 which improved to 32% in Q4 of 2020.
Valuation is a concern
Unlike most recent IPOs, Palantir is profitable on an adjusted
basis. However, itU+02019s still trading at a steep price to sales
multiple of 42.2x and a price to earnings multiple of 150x. While
growth stocks command a premium, any
sell-off in the broader markets will drag Palantir stock lower
as well.
Analysts tracking Palantir have a 12-month average target price
of $26 which is 8.3% higher than its current trading price.
Palantir Technologies (NYSE:PLTR)
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