Palantir Technologies Inc. (PLTR) builds software platforms that help organizations integrate their data, decisions, and operations at scale. The company operates through two segments: Commercial and Government. The Commercial segment serves customers working in non-government industries.

The Government segment serves customers in the United States federal government and non-United States governments. It has built three principal software platforms: Palantir Gotham, Palantir Foundry, and Palantir Apollo.

Although PLTR managed to surpass the consensus revenue estimate, it missed the EPS estimate by 50% in the last reported quarter. The company guided $470 million in revenue for the second quarter ending June 30, 2022, below the consensus estimate.

Although PLTR is trying to expand its presence in commercial markets, it still derives a significant chunk of its revenue from government contracts, affecting investors’ sentiments.

Amid surging inflation, the Federal Reserve has maintained an aggressive monetary stance, giving rise to recession fears. This has led to a broad-based sell-off in equities lately. Growth stocks like PLTR were amongst the worst hit as investors shifted their attention toward value stocks.

PLTR has declined 49% in price year-to-date and 62.5% over the past year to close the last trading session at $9.27. It is currently trading 68.3% below its 52-week high of $29.29, which it hit on September 17, 2021.

Here’s what could influence the performance of PLTR in the upcoming months:

Disappointing Financials

PLTR’s adjusted operating margin for the first quarter ended March 31, 2022, came in at 26%, compared to 34% in the year-ago period. The company’s adjusted free cash flow declined 80.2% year-over-year to $29.78 million. 

Also, its adjusted EPS decreased 50% year-over-year to $0.02. Its net cash provided by operating activities declined 69.6% year-over-year to $35.47 million. In addition, its total operating expenses increased 2.7% year-over-year to $391.39 million.

Favorable Analyst Estimates

PLTR’s revenue for fiscal 2022 and 2023 is expected to increase 28.9% and 28.6% year-over-year to $1.99 billion and $2.56 billion, respectively. Its EPS for fiscal 2022 and 2023 is expected to increase 24.8% and 47.7% year-over-year to $0.16 and $0.24, respectively.

Mixed Profitability

PLTR’s trailing-12-month net income margin is negative compared to the 5.17% industry average. Likewise, its trailing-12-month Return on Common Equity is negative compared to the 7.39% industry average. Furthermore, the stock’s 0.52% trailing-12-month asset turnover ratio is 17.9% lower than the industry average of 0.63%.

On the other hand, its 78.16% trailing-12-month gross profit margin is 55.1% higher than the industry average of 50.38%. Also, its 21.21% trailing-12-month levered FCF margin is 128.4% higher than the industry average of 9.28%.

Stretched Valuation

In terms of forward non-GAAP P/E, PLTR’s 57.11x is 238.6% higher than the 16.86x industry average. Likewise, its 1.74x forward non-GAAP PEG is 34.9% higher than the 1.29x industry average. And the stock’s 7.03x forward P/B is 96% higher than the 3.59x industry average.

POWR Ratings Reflect Bleak Prospects

PLTR has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has an F grade for Value, in sync with its 9.54x forward P/S, which is 254.1% higher than the industry average of 2.69x.

It has a C grade for Quality, consistent with its mixed profitability.

PLTR is ranked #20 out of 24 stocks in the F-rated Software – SAAS industry. Click here to access PLTR’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

PLTR is currently trading below its 100-day and 200-day moving averages of $10.78 and $15.79, respectively, indicating a downtrend.

Although its earnings and revenue are expected to grow in the long term, the stock will likely suffer due to the overall macroeconomic uncertainty and the company’s over-reliance on government contracts. Also, given PLTR’s stretched valuation and poor financials, it could be best avoided now.

How Does SoFi Technologies, Inc. (SOFI) Stack Up Against Its Peers?

PLTR has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Software – SAAS stocks with a B (Buy) rating, such as The Sage Group plc (SGPYY) and MiX Telematics Limited (MIXT).

PLTR shares were unchanged in premarket trading Monday. Year-to-date, PLTR has declined -49.09%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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