One of the hottest stocks this year Palantir(NYSE: PLTR). The company’s strong results and S&P 500 It’s helped the stock soar more than 250% this year as of this writing.
Stocks have performed admirably this year, but the question on many investors’ minds is whether the stock is still a buy after this year’s big gains. Let’s take a closer look at buying and selling examples of Palantir stock to help you make your decision.
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Through its work with the U.S. government, Palantir has established itself as one of the world’s leading data collection and analytics companies, responsible for key tasks such as combating terrorism and tracking COVID-19 cases. However, the company’s artificial intelligence Entry into the platform (AIP) and commercial sectors is the biggest reason for the stock price rise.
The company has seen explosive growth in its U.S. commercial segment in recent quarters, adding more and more commercial customers attracted to its AI platform and the variety of use cases it can use across industries. Last quarter, Palantir’s U.S. commercial revenue rose 54% to $179 million, and AIP said it was seeing “relentless demand for AI” among those customers. Meanwhile, the number of U.S. commercial customers increased 77% year-over-year, and total contract value (TCV) increased 37% to nearly $300 million.
The company is also seeing accelerated growth with its largest customer, the U.S. government, starting to embrace its AI products. U.S. government revenues rose 40% last quarter to $320 million. The company said its application is beginning to be embraced by all aspects of government, including the White House, Congress, the Department of Defense and Intel agencies. Large-scale language model (LLM).
But Palantir’s biggest opportunity going forward will be moving customers from AI prototyping work to production. The company currently has many new customers, but greater opportunities will come as it begins to expand within these customers. The company already has a strong net dollar retention rate of 118% last quarter. This measures the revenue earned from existing customers who have been with the company for more than one year minus customer churn.
However, Palantir’s net dollar holdings do not include growth in customers added over the past 12 months, and that’s where the big growth opportunity lies. Palantir has added many new AIP customers over the past year for its early AI prototype work, and expanding within these new customers will provide opportunities to continue to accelerate revenue growth going forward. And accelerated earnings growth could lead to higher stock prices.
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Palantir has proven to be a great company, but whether the stock is a buy is a whole different question. Great companies typically don’t trade at bargain prices, but valuation still matters.
And the valuation has the biggest impact on Palantir’s stock. The stock is currently trading at a forward price-to-sales (P/S) ratio of about 40 times analyst estimates for next year. If you take out net cash and use enterprise value to sales multiple (EV/S), it still trades at 39x. At the peak of Software-as-a-Service (SaaS) valuations, SaaS stocks were trading at a multiple of 19.4 EV/S and revenue was growing in the low-30s range. This is slightly lower than the 30% growth Palantir recorded last quarter.
Meanwhile, Palantir executives and other insiders also appear to have recognized the height of the stock’s valuation, with many, including CEO Alex Karp, selling shares in recent months.
Karp has been a regular seller of Palantir stock in recent years, but his selling has picked up significantly since September. Over the past few months, he has exercised options and sold shares on four occasions, selling more than 33 million shares for total proceeds of more than $1.6 billion. Meanwhile, Chairman Peter Thiel sold over $1 billion worth of stock in September and early October, and numerous other insiders also sold shares.
In the case of Palantir, I’ll follow what the company’s management does. It’s a great company, but it’s now worth twice its peak SaaS valuation just a few years ago and is growing at a similar rate.
Therefore, I would not be a new buyer of the stock, and I think investors should at least consider taking some profits from the stock after a very strong rally.
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Jeffrey Sailer There are no positions in the stocks mentioned. The Motley Fool has a position in and recommends Palantir Technologies. All kinds of idiots Disclosure Policy.
