Palantir Technologies: High Growth Justifies High Valuation

Palantir Technologies (PLTR) is a data analytics and artificial intelligence software company that plays a mission-critical role for the U.S. Government and its allies. It is also growing rapidly in the commercial sector and playing an increasingly important role in driving efficiencies and new capabilities for Western businesses.

While its commercial Foundry platform was traditionally designed to service large enterprises, Foundry for Founders is a new product that is intended to bring start-ups and smaller businesses on board as Palantir customers.

Palantir has strong growth potential and substantial upside potential, as indicated by its discounted valuation relative to its historical averages. It is also undervalued relative to its one-year price target. I am bullish on PLTR stock.

Strengths

PLTR employs some of the brightest minds in the world and solves some of the world’s greatest and most pressing challenges. It has embedded itself as an indispensable tool of the U.S. Government and is increasingly mission-critical for numerous large and small commercial enterprises as well. As a result, it should see its revenues become increasingly sticky in the years to come.

Recent Results

PLTR reported strong revenue growth in Q4, with it rising 34% year-over-year to $433 million, led by robust commercial revenue growth of 47% and U.S. commercial revenue growth in particular (132% year-over-year growth). Government revenue continued plodding along as well, at a 26% year-over-year growth rate. PLTR also added 34 net new customers during Q4 as well.

The company’s balance sheet remained strong at quarter-end, with zero net debt. PLTR generated $93 million in cash from operations and adjusted free cash flow of $104 million. The company also reported adjusted net earnings per share of $0.02 and closed 64 deals of $1 million or more during the quarter, 19 of which were for $10 million or more, indicating that growth should continue moving forward.

Valuation Metrics

PLTR stock looks attractively valued at the moment. It currently trades at a 37.7x forward EV/EBITDA ratio, which is quite high by itself. Still, when taking into account the company’s robust growth potential, it isn’t all that bad. Analysts expect the company to increase EBITDA from $488.35 million in 2021 to $534.4 million in 2022 and $719 million in 2023, reflecting dramatic growth.

Furthermore, normalized net income is expected to increase from $308.08 million in 2021 to $465 million in 2022. This growth potential and the long-term tailwinds in the data analytics and artificial intelligence industries indicate that it could be an opportunistic time to buy PLTR.

Wall Street’s Take

According to Wall Street analysts, PLTR earns a Hold consensus rating based on two Buys, four Holds, and three Sell ratings in the past three months. Additionally, the average Palantir price target of $13.75 puts the upside potential at 18.8%.

Summary and Conclusions

Palantir is a leading global data analytics and artificial intelligence company with substantial growth momentum a massive long-term growth runway. After the recent sell-off in the stock price, it looks quite opportunistic as the valuation multiples look reasonable relative to the long-term growth prospects, and the average price target implies that the stock could see decent upside over the next year.

On the other hand, Wall Street analysts are generally neutral on the stock here, and it remains highly speculative as a high-growth tech stock with weak profitability. Overall, it looks like it might be a good time to consider PLTR stock.

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