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In the realm of investment decisions, few scenarios generate as much interest and debate as a significant stock pullback. Palantir Technologies (PLTR), a prominent player in the realm of data analytics and artificial intelligence (AI), is at the center of these discussions following its recent earnings report. PLTR sold off as Wall Street reacted to its sales guidance, raising questions about the best course of action for investors now.
Particularly noteworthy is the endorsement of analyst Dan Ives from Wedbush, who has characterized the post-earnings decline as a "golden buying opportunity." As investors weigh the implications and possibilities, the question looms large: is now a good time to seize the moment and buy the dip in Palantir stock? Let’s have a closer look.
About Palantir Technologies Stock
Founded in 2009, Palantir Technologies Inc. (PLTR) specializes in developing and implementing software platforms for data analysis, catering to a global clientele with solutions that accommodate various data types such as structured, unstructured, relational, temporal, and geospatial.
Shares of Palantir Technologies have climbed by 112.3% over the past 52 weeks, outperforming the broader S&P 500 Index’s ($SPX) 27.5% gain over the same period. However, the stock is now down about 21% from its early March highs.
Recent News for PLTR Stock
On April 18, Marketing Brew’s Ryan Barwick reported that Palantir had met with advertising agencies to discuss the use of its year-old AI platform, AIP, as part of its ongoing efforts to expand its commercial business. Palantir is showcasing “wide-ranging use cases and applications” of AIP for tasks such as “pricing and inventory planning,” “programmatic sales,” and “campaign optimization,” according to a pitch deck shared with the publication.
On April 17, Palantir announced it had been designated as an “Awardable” vendor for the Chief Digital and Artificial Intelligence Office’s Tradewinds Solutions Marketplace. Two of Palantir’s product offerings - namely, its AI Mission Command Capability and its Predictive Maintenance & Precision Sustainment Suite - have been included in the Marketplace and are now available to support critical missions across the Department of Defense.
On April 5, Oracle (ORCL) and Palantir unveiled a collaboration to deliver secure cloud and AI solutions with the goal of empowering businesses and governments globally. The combination of Oracle's distributed cloud and AI infrastructure with Palantir’s top-tier AI and decision acceleration platforms will assist organizations in optimizing the value derived from their data.
Palantir Reports Solid Q1 Results, But Full-Year Sales Outlook Disappoints
On May 6, Palantir Technologies reported its Q1 earnings results. The company reported a 20.8% year-over-year increase in total revenue to $634.33 million, driven largely by increasing demand for its AIP, surpassing the consensus by $16.72 million. Revenue growth was primarily fueled by U.S. commercial, which represents the focal point of Palantir Technologies’ business activities. Specifically, U.S. commercial experienced a 40% year-over-year surge in sales to $150 million. The company sustained its customer base expansion in the latest quarter, which fundamentally supported its revenue growth, with the U.S. commercial customer count increasing by 69% year-over-year from 155 to 262 and the overall customer count climbing by 42% year-over-year from 391 to 554. Palantir Technologies’ adjusted earnings came in at $0.08 per share, in line with analysts’ expectations.
Notably, the company has been able to expand its customer base rapidly and has been able to successfully translate this growth into significant gains in free cash flow. Palantir Technologies generated $149 million in adjusted free cash flow in the first quarter, representing a margin of 23%. However, despite its strong adjusted free cash flow, the FCF margin in the current quarter was lower compared to the same period last year. Last year, the company earned $188.9 million in adjusted FCF at a margin of 36%. It’s worth noting that PLTR stands out as one of the few companies without any current or long-term debt on the balance sheet.
Turning to Palantir Technologies’ guidance, management expects revenue to range between $649 billion and $653 million in the second quarter. Adjusted income from operations is expected between $209-$213 million.
Furthermore, the company increased its revenue guidance for the full fiscal year 2024 to $2.677-$2.689 billion from its prior view of $2.652-$2.668 billion. The company also increased its guidance for adjusted operating income to a range of $868 million to $880 million. Palantir also anticipates adjusted free cash flow between $800 million and $1 billion. With an expected full-year free cash flow of up to $1.0 billion from projected sales of $2.68-2.69 billion, investors can expect an FCF margin between 30-37% in 2024.
However, the company’s full-year sales guidance disappointed some analysts and investors, resulting in a single-day drop of over 15% in the stock. Analysts tracking Palantir project the company’s adjusted profit to increase by 32.05% year-over-year, reaching $0.33 per share in fiscal 2024. Additionally, Wall Street anticipates PLTR’s full-year revenue to grow by 21.25% year-over-year to $2.70 billion.
Meanwhile, Wedbush Securities advised investors to take advantage of the dip and buy shares. “We are laser-focused on the AI story playing out with [Artificial Intelligence Platform] leading the way and Palantir delivered robust numbers on this front yet again,” Wedbush Securities analyst Dan Ives said in an investor note. “We believe any modest sell-off post-print is a golden buying opportunity for this pure play AI name.”
PLTR Stock Valuation and Risks
Assessing Palantir’s valuation, the stock is currently trading at approximately 66 times the consensus earnings estimate for 2024 - which exceeds the sector median of 24.29 times, but is significantly lower than its five-year average of 123.25 times. Nevertheless, the company’s valuation appears expensive, and to justify it, Palantir must maintain its current growth rates going forward.
Investors should also take risks into account. Despite the rapid pace of technological advancement and PLTR’s position at the forefront, there is no assurance that the company will continue to lead in the AI space. New companies could develop superior software, or existing giants with substantial financial resources, like Microsoft (MSFT), could become formidable competitors, potentially resulting in a loss of customers and decreased sales.
Options Market Sentiment
Looking at the June 21, 2024, option chain for PLTR, let’s figure out options market sentiment by comparing the open interest levels.
The put-call ratio at the $22.00 strike price, closest to the current share price, stands at 0.59, indicating a higher preference for call options and suggesting expectations for a potential rise in the stock price.
What Do Analysts Expect For PLTR Stock?
Palantir stock has a consensus “Hold” rating. Out of the 14 analysts covering PLTR stock, two recommend a “Strong Buy,” one suggests a “Moderate Buy,” six give a “Hold” rating, one advises a “Moderate Sell,” and the remaining four analysts give a “Strong Sell” rating.
The mean target price for PLTR stock is $20.93, which is a slight discount to Friday’s closing price. However, the Street-high price target of $35 suggests that the stock could rally as much as 60.8%.
The Bottom Line on PLTR Right Now
All things considered, I believe the recent pullback really presents a “golden buying opportunity,” given the company’s standing in the AI space, strong performance in the first quarter, absence of debt on the balance sheet, bullish options market sentiment, and prospects for future growth.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
