Written by Norman Isaac Mwambazi

Palantir Technologies stock: To buy or not to?

Palantir Technologies has been at the centre of discussion since it was listed on the New York Stock Exchange on …

Palantir Technologies has been at the centre of discussion since it was listed on the New York Stock Exchange on September 30, 2020. The software company, which was founded in 2003 by four entrepreneurs Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and Alex Karp, has had its share price surge from $11 to $25 in a few weeks. This is a gain of about 150%.

A stock like that surely has to catch the eye of investors mostly those interested in buying tech stock with high growth potential. However, some investors are wondering whether Palantir is worth buying or not. We have listed a few key points about the company that can help you make your decision below but first things first: What does Palantir Technologies do?

Founded in 2003 as earlier said, Palantir Technologies is headquartered in Denver, Colorado, the USA where it designs, develops, and markets software that specializes in big data analytics. Simply put, Palantir, through its software, helps organisations and clients alike to organise all their data on one platform, which makes it easier for them to make decisions.

By the time of this writing, the company has over 125 customers that include financial services companies, government agencies, and departments.

Notable clients include the Federal Bureau of Investigation (FBI), the Central Intelligence Authority (CIA) in the US, and the National Health Service (NHS) in the UK, who have used its software to distribute Personal Protective Equipment (PPE) to frontline workers during the COVID-19 pandemic.

In the financial services field, hedge funds, banks, and financial services companies such as Morgan Stanley among others use Palantir’s software to help them with risk management.

As you can see, these are big clients so for a company to be able to provide software to these high profile entities, it has to be reputable and its software has to be one of the best around, if not the best on the market.

Palantir Technologies currently has three projects: Palantir Gotham, Palantir Metropolis, and Palantir Foundry.

Strong growth

Palantir’s growth over the years has been impressive so it is no surprise that its stock surged after its public listing. In Q3 FY 2020, the company reported a 52% year-on-year rise in revenues to $289.4 million. This rise increased the company’s guidance for full-year revenue to around $1.07 billion, equivalent to a growth of 44% over the previous year.

However, although the company registered those numbers that reflected its growth, Palantir incurred a loss from operations of $847.8 million for Q3 FY 2020.

This should not cause an alarm though, because when adjusting for $53.7 million in expenses related to the listing, $20.2 million in related employer payroll taxes and $847 million in stock-based compensation, income from operations was $73.1 million.

Looking for a high growth stock? Palantir might just be an option.

Valuation

Currently trading at $25, you might be asking yourself whether this stock is expensive. The answer is yes, it is now expensive, considering the fact that it was only $11 before the company went public in September.

With a market capitalisation of $44.20 billion and shares going for $25, the company’s stock price-to-sales ratio is 45, which is quite high and can be risky to your investment. At some point, this price could fall. 

Insiders are selling

Since Palantir went public over two months ago, several top-level insiders have sold over $100 million worth of the company’s stock. These include Chief Executive Officer (CEO) Alexander Karp, President and co-founder Stephen Cohen, Chairman and co-founder Peter Thiel, as well as Chief Financial Officer (CFO) David Glazer.

The question lingering in our minds right now is why are top-level executives of the company selling its stock if they expect it to rise? That is something to ponder about before you make your decision.

The bright side

As we saw with earlier, Palantir’s growth curve looks good and being a tech company that has continued to perform well and exceed Wall Street expectations through the COVID-19 pandemic, you cannot rule out its growth potential.

Additionally, the company has an edge over competitors in the big data business evidenced through its high profile clients. As long as it keeps them (the clients) and keeps their products top-notch, it will continue performing well financially, which means nothing but better performance on the stock market as well.