About Palantir
Yes, Palantir, a meme stock that has been and continues to be at the forefront (among other stocks) of the meme stock craze that has seemingly slowed, but is far from being fully subdued, at least, this is what we assume.
While we would just love to talk your ear off and offer a little more context regarding the somewhat recent meme stock fiasco, we will instead offer some external literature on the subject, as it would serve us and yourselves better if we stuck to our core competencies, one of which includes writing stock analysis articles on publicly traded companies, and Palantir, a company that is engaged in some very interesting and secretive work, just happens to fit into that category like a glove.
Headquartered in Denver, Colorado, Palantir, headed by prolific technology entrepreneur, Alex Karp and famed venture capitalist that backed prominent payment platform Stripe along with one of the companies that Elon Musk dabbles in, SpaceX, Peter Thiel, among other notable business figures, Palantir can ultimately be thought of as a highly specialized data analytics firm that focuses on helping enterprises, primarily both businesses and government agencies (more on that momentarily) analyze and make the most out of their data, that is, the data Palantir seemingly analyzes with a fine-tooth comb through its analytical software and other technological properties.
While we certainly aren’t experts on how all of this works from a technical, back-end perspective, we unequivocally understand that this is one of those companies that has and will more than likely continue benefiting from the prevailing boom in artificial intelligence (AI).
In developing a better framework surrounding Palantir, the company’s primary platforms include “Foundry” and “Gotham.”
Foundry is their platform that is geared towards businesses and other related enterprise customers, helping them ultimately turn troves of data into digestible, actionable information that can help business owners operate their businesses better, in practically all aspects, shapes and forms.
As it pertains to Gotham, this segment of the company’s platform is dedicated to performing very similar tasks and serving eerily similar purposes, however, within the context of battle, more specifically, helping militaries and other agents of government make better decisions in areas, regions and situations of combat, as the company has a sort of stamp of approval from one of the most prolific modern government agents in the United States, General James N. Mattis, claiming “Palantir came up with ground breaking technologies that help us make better decisions in combat zones.”
From a former secretary of defense and distinguished four-star Marine general, this is a great stamp of approval to have.
So, yeah, the company is engaged in some pretty interesting, yet sensitive work.
Through selling its software and related capabilities, we deem Palantir’s general business model as being fairly resistant to recessionary pressures given the industries and partnerships it has already established and that once a company or government agency brings on Palantir, it likely isn’t disentangling itself from its new software partner anytime soon.
Now that some of the basics regarding this specialized software as a service (SaaS) company have been established, let’s learn more about this company’s financials and other core, related metrics so as to devise an ultimate perspective and opinion on this company’s stock (NYSE: PLTR) and whether or not it is worth buying now and holding indefinitely.
Palantir’s stock financials
With a prevailing market capitalization of $40.63 billion, a present share price of $18.89 along with not a price-to-earnings (P/E) ratio nor an annually distributed dividend in sight, you certainly can assume this is a younger SaaS company without even initially knowing it, as many maintain the same introductory trend in that they rarely have an available price-to-earnings ratio nor pay out a dividend, typically due to the fact that to merely remain an operator in the space requires a lot investment and reinvestment so as to simply stay on par with or on top of the competition, and, in the process, a company such as Palantir might be burning through a fair amount of cash in simply maintaining its operations as it (hopefully) scaled and (again, hopefully) continues to scale.
Thus, we aren’t feeling too high nor too low given these initial figures.
In obtaining more in regards to Palantir and its overall financial health, the company’s executive team is in charge of taking care of and responsibly tending to just about $3.4 billion in terms of total assets as well as $896 million in terms of total liabilities, which, for a SaaS company, is a markedly solid start to our analysis journey, as this company is evidently total asset-heavy with respect to its cumulative liabilities, lending itself a fine platform off of which it can grow through putting some cash to work both internally and externally, perhaps pouring some gasoline onto its business (shoutout to Mr. Wonderful) through acquiring smaller, specialized SaaS platforms with focuses in and around operational military intelligence, as an example.
All in all, the team at Palantir has crafted a fine balance sheet built for now and for later, which, to us, is initially confidence invoking.
As it relates to the company’s recent year-over-year (YOY) revenue figures (particularly since 2018), Palantir’s have been doing exactly what we like, especially for younger software firms; growing.
For instance, the company’s total annual revenues in 2018 stood at $595 million, rising the following year to $743 million, just north of $1 billion 2020, $1.5 billion in 2021, leading up to its latest reported revenue figure of around $1.9 billion.
At this point, for any larger, reputable SaaS firm, we expect revenues to be rising at a brisk pace each year, as they are doing exactly what they should be doing in growing their customer base, penetrating new product lines and markets through their current users and likely a handful of other things leading to revenue growth and, to us, ultimately, revenue success, not to mention the fact that the shape the world is in today with respect to geopolitics and war-related tensions, Palantir is indisputably a company that stands to gain (right or wrong, we might add) from present and continued volatility in these arenas.
Now, let’s see just how much cash this company is burning through in order to obtain the aforementioned revenues, shall we?
According to the company’s cash flow statement (again, referencing since 2018), Palantir has certainly not deviated from the status quo of SaaS operators burning through some cash, as the company’s grew increasingly negative (specifically referencing its total cash from operations figures) between 2018 and 2020 from a relative high of -$39 million (2018) to a relative low of -$297 million (2020), however, following these years, some light developed towards the end of the tunnel as in 2021, the company’s total cash from operations were reported as $334 million, preceding its latest reported cash from operations figure of $224 million.
Yes, the company’s total cash from operations (on a year-over-year basis) have been somewhat volatile, however, we are encouraged to find that the company turned a negative-to-positive cash flow corner in some of the most recent years, and we surely hope the company can continue this trend in the years to come, although, we fully acknowledge that this company is still relatively young and could experience some fluctuations given the strength (or lack thereof) of the SaaS market during different market cycles.
Again, however, we still generally deem this company’s SaaS platform as having a sort of added layer of recession protection given the aforementioned information outlined in paragraphs above with respect to its sticky government and enterprise contracts.
Palantir’s stock fundamentals
While this company’s trailing twelve month (TTM) gross profit margin (according to the figures displayed on TD Ameritrade’s platform) is in a good place with respect to the competition, for instance, as it is listed as a healthy 79.15% to the industry’s respective average of 72.78%, we typically give more credence to the TTM net profit margin, and at the moment, Palantir’s isn’t as competitive as one might’ve hoped it would be in this respect, however, given all of the SaaS companies we have analyzed in the past, growth is key right now for a company in Palantir’s stage and growth almost always comes at a cost, and that cost usually results in a lower TTM net profit margin, severely eating into its gross profit margin.
In briefly quantifying this, it can also be found on TD’s platform that Palantir’s TTM net profit margin has been whittled all the way down to -2.12% in comparison to the industry’s listed average of 11.86%, which, thankfully for Palantir, isn’t all that far off from the industry’s respective average, and given the company’s track record, we don’t think there are many reasons why this company’s TTM net profit margin doesn’t nudge up in the years to come, inching closer and closer to the industry’s respective average, but, as is the case with any firm, particularly SaaS companies, this will take some time and continued, consistent, elevated execution on the part of Palantir.
Onto the company’s TTM returns on assets and investment(s), there are absolutely zero surprises here, as the company’s, on both of these fronts, sit slightly negative, whereas the industry’s respective averages find themselves positive to a similar tune of its aforementioned TTM net profit margin, however, given the previous discussion regarding the company needing some time and other core elements, we think Palantir can attain and even potentially exceed the industry’s core TTM return averages as the cash burn slows and the revenues and market share grows.
Should you buy Palantir stock?
While it is sort of silly that we even have to bring this up, out of all of the positives surrounding this company and its stock, one has to keep in the back of their mind that it is still hanging around in the meme stock-sphere and thus we hold that this company’s stock (NYSE: PLTR) maintains a sort of extraordinary risk with respect to retail traders pushing this company’s stock inordinately up and down through mass buying and selling.
We personally take no offense to meme stock traders, but we are merely pointing out a risk that is still quite prevalent.
Numbers and analysis alone, however, Palantir is a very, very interesting technology firm with many applications and capabilities that intentionally serve a specific customer base, not to mention the fact that the company’s balance sheet is in excellent overall condition, its revenues have been trending upwards and rightwards on the charts, it has been oozing some cash, however, this trend has recently turned positive and so long as that can be sustained for the years that come, that is a huge point to note.
Of course, the company’s core TTM return metrics along with its TTM net profit margin aren’t quite all there yet, however, with time and continued execution and further market penetration and expansion, we hold the view that it is only a matter of time before this company inches closer and closer to the industry’s averages, before, hopefully, eventually exceeding them.
Putting all of the facts and generally conservative assumptions together, we deem it most appropriate to give Palantir’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.