With a $20.86 billion market cap, Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism operations and investigations. The company has built three principal software platforms: Palantir Gotham, Palantir Foundry, and Palantir Apollo.

Investors have been bearish about PLTR due to its deteriorating financials and extended tech sell-off. Over the past year, the company has witnessed huge losses and struggled to improve margins.

The stock has plummeted 44% in price year-to-date and 61.6% over the past year to close the last trading session at $10.19. PLTR is currently trading 65.2% below its 52-week high of $29.29, which it hit on September 17, 2021.

Here is what I think could influence PLTR’s performance in the upcoming months:

Poor Financials

For its fiscal first quarter ended March 31, 2022, PLTR’s revenue improved 30.8% year-over-year to $446.36 million. However, its operating expenses amounted to $391.39 million for the period. Also, the company’s loss from operations came in at $39.44 million.

PLTR’s net loss and net loss per share attributable to common stockholders stood at $101.38 million and $0.05, respectively. Its net cash used in investing activities came in at $96.47 million, up 13,525.4% year-over-year. In addition, its adjusted free cash flow declined 80.3% from the year-ago value to $29.79 million.

Mixed Growth Prospects

Analysts expect the company’s revenues to rise 25.4% year-over-year to 470.85 million in its fiscal 2022 second quarter (ending June 2022). However, the $0.03 consensus earnings per share estimate for the ongoing quarter reflects a 22.5% decline from the same period in 2021.

Nevertheless, Street expects the company’s revenue and EPS to rise 29% and 24.9% year-over-year to $1.99 billion and $0.16, respectively, in its fiscal year ending December 2022.

Frothy Valuation

In terms of forward non-GAAP P/E, PLTR is currently trading at 62.78x, which is 253.5% higher than the 17.76x industry average. In addition, its forward EV/Sales multiple of 9.35 is 226.8% higher than the industry average of 2.86x.

PLTR’s forward EV/EBITDA and EV/EBIT multiples of 33.84 and 35.08 are significantly higher than the respective 11.93 and 15.22 industry averages. Its 10.49 forward Price/Sales ratio is 268.2% higher than the 2.85 industry average, while its 7.73 forward Price/Book ratio is 102.3% higher than the 3.82 industry average.

Low Profitability

PLTR’s trailing-12-month EBIT margin is negative 20.43%, and its trailing-12-month EBITDA margin is negative 19.46%. Furthermore, the company’s trailing-12-month net income margin and ROCE are negative 30.25% and 23.89%, respectively.

POWR Ratings Reflect Bleak Prospects

PLTR’s overall D rating translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

PLTR has an F grade for Value, in sync with its higher-than-industry valuation ratios. In addition, the stock has a D grade for Stability, consistent with its relatively high beta of 1.81.

PLTR is ranked #16 out of 23 stocks in the F-rated Software – SAAS industry.

Beyond what I have stated above, we have also given PLTR grades for Growth, Sentiment, Quality, and Momentum. Get all the PLTR ratings here.

Bottom Line

PLTR reported disappointing first-quarter results and hinted at declining growth. Furthermore, the macroeconomic headwinds, including record-high inflation, the Fed’s hawkish tilt, and the possibility of an economic slowdown, could dampen the company’s performance. Given its stretched valuation and declining profitability, we think the stock is best avoided now.

How Does Palantir Technologies Inc. (PLTR) Stack Up Against its Peers?

While PLTR has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, The Sage Group plc (SGPYY), MiX Telematics Ltd. ADR (MIXT), and Informatica Inc. (INFA), which have an overall B (Buy) rating.

PLTR shares were trading at $9.76 per share on Monday morning, down $0.43 (-4.22%). Year-to-date, PLTR has declined -46.40%, versus a -17.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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