Palantir, a unique software company whose stock price has recently fallen sharply. The logical question for investors is: buy Palantir stock or not? In this article we cover a stock analysis of Palantir (PLTR). Do we want to invest in this company? And if so, why? Based on both strategic and financial analysis, we determine its strengths and weaknesses. Opportunities and threats are also relevant to its long-term growth potential.
Buy Palantir shares or not? Let's get started!
Stock Analysis: Palantir (PLTR)
Palantir Technologies Inc. (PLTR) is an American company founded by PayPal Holdings Inc. (PYPL) founder Peter Thiel in 2003 that specializes in data analytics. As well as catching tax cheats and terrorists, Palantir programs are also being used by governments and their secret services to locate people believed to be entering countries illegally.
Initially, the company’s tech was used to locate Osama Bin Laden in 2011; then, in 2020, the company’s tech was used to trace the spread of COVID-19. The company’s main divisions/products are Palantir Gotham, which serves government contracts. Palantir Foundry, a private enterprise platform. And Palantir Apollo. Palantir has platforms used in over 150 countries across more than 40 industries.
The business model of the company is divided into three steps: Acquire, Expand, and Scale. During the acquisition and expansion phases, the company incurs pilot costs and runs at a loss. By the time the company reaches scale, customer contribution margins are positive. Palantir has participated in several rounds of the SPAC PIPE program, including:
- Babylon: telehealth
- Celularity: cell-based biotechnology
- Roivant: pharmaceutical
- Sarcos: robotics
- Lilium: electric aerospace
- WeJo: connected vehicle data
Palantir invests in these companies for a range of sizes, often $20 million to $30 million each, and it targets businesses working to develop breakthrough technologies.
Price Target of Palantir (PLTR)
Palantir's share price has fallen sharply to the level of its IPO. Now IPO stocks are inherently volatile. But a serious risk with Palantir is that, despite its size, the company is still making substantial losses. Stock market analysts are currently maintaining a low price expectation for Palantir shares.
According to Market Watch, based on analysts’ offering, the average price target for Palantir (PLTR) stock is $10.74, with a high estimate of $16.00 and a low estimate of $6.00.
According to CNN Business, based on analysts’ offering, the average price target for Palantir (PLTR) stock is $ 11.00, with a high estimate of $16.00 and a low estimate of $6.00.
According to Investing.com, based on analysts’ offerings, the average price target for Palantir (PLTR) stock is $34.90, with a high estimate of $60.00 and a low estimate of $18.00.
Buy Palantir Shares Advice
Advice on buying Palantir shares is a personal matter. Therefore, we do not give personal advice on buying Palantir shares. We can only indicate what our insights are regarding this software company.
Palantir has characteristics of a unique company that can realize a sustainable competitive advantage. In that situation, buying Palantir shares is attractive. The only question is: how profitable can the company become? Expected earnings growth is crucial for buying Palantir shares. Those who buy at too high a level can wait years for a positive price return.
We use objective calculation models to analyze the best stocks.
The best stocks offer the combination of a strong company with a favorable stock price. Based on our sources, it seems unwise to buy Palantir stock now. The financial valuation is still high, despite somewhat attractive growth. The profitability position is poor in the short term. The momentum is also unattractive.
Again, we do not give personal advice on buying Palantir stock. Our preference is not to invest in this company at this time. The entire stock market situation may cause this stock to fall further in the short term.
However, we do recognize the long-term opportunity. It is potentially a unique company. The stock price has fallen sharply and the stock price is becoming more attractive. But perhaps with some patience the price will get even better for long term investors with high risk profile.
Strengths and Weaknesses of Palantir (PLTR)
Palantir is potentially a unique company. It has some strong capabilities in the field of AI software. If it is able to spread this knowledge to other types of applications, then the company can grow into a major global player.
Below are some strengths and weaknesses of the company.
Strengths of Palantir
- One of Palantir Software’s strongest points is more than 40 industries around the world use this software, including both commercial and government organizations.
- The company lacks direct counterterrorism competitors.
- As a result of its product portfolio and brand portfolio, Palantir Software can simultaneously target different segments within the domestic market. Through this, Palantir Software has been able to build a diverse revenue and profit mix.
- As an established player in the industry, Palantir Software enjoys strong relationships with its suppliers. Using the skills of its suppliers and supply chain partners, the organization can increase its products and services.
- Palantir Software operates in the domestic market, which is both a source of strength and a barrier to growth. Palantir Software can easily grow in its domestic market without much innovation. However, if it wishes to enter international markets, it will need to invest more in research and development.
Weaknesses of Palantir
- Palantir Software has restrictions on commercial relationships with some governments due to its close relationship with the US and its access to sensitive information.
- There is a lack of a commercial customer base, network, and experience.
- The organizational culture at Palantir Software is still dominated by power struggles within various divisions, which causes managers to keep information to themselves. It can cause serious problems in growth as information in one place can lead to missed opportunities in the marketplace.
- Despite integrating technology into its backend processes, Palantir Software has yet to harness the power of technology for its front-end processes.
- Palantir Software has a stable balance sheet, but one measure needs to be looked at: "ROIC". The company's profitability is substandard. The question is how profitable it can grow. Ratios like ROE and ROIC are key in your analysis.
Threats and Opportunities for Palantir (PLTR)
For long-term growth in Palantir stock, the company needs to respond to opportunities and threats. From limited research, we obtain some insights.
Opportunities for Palantir
- There is a growing need for counterterrorism approaches within the international community today, which presents a huge opportunity for the organization.
- The market size has expanded at a rapid pace over the last decade and a half. The influx of new customers has also led to the evolution of consumer preferences and tastes. Palantir Software faces two major challenges now - how to retain loyal customers and how to attract new ones. Initially, Palantir Software used different brands and then added various features based on customer preferences.
- Palantir Software operates in a changing technology landscape driven by machine learning and artificial intelligence growth. By leveraging these developments, Palantir Software can improve efficiencies, cut costs, and transform processes.
- Globalization has paved the way for lucrative opportunities in international markets. Palantir software is in a prime position to take advantage of these opportunities and expand its market share.
- Palantir Software can look for opportunities in adjacent industries to expand its market share. One way to do this is to add features to its existing products and services.
Threats for Palantir
- Too close relationship with governments, arousing ethical issues and private information leaks.
- Due to the possibility of monitoring citizens, the organization faces potential backlash from the public.
- For the next phase of growth, Palantir Software is targeting China. However, there is a growing tension in US-China trade relations, which may result in protectionism, more friction in international trade, and increases in labor and business costs.
- Palantir Software customers have increased their bargaining power substantially over the years, putting downward pressure on prices.
- Palantir Software should reduce its reliance on debt since it can obtain credit anytime. Even though the party has lasted for more than a decade, a Fed rollback could result in Palantir Software paying huge interest costs.
Risks analysis of Palantir (PLTR)
The initial public offering (IPO) and the trading debut of Palantir (PLTR) in 2020 attracted a lot of attention among investors. However, the performance of stock Palantir can be affected by various risks in the future.
The company's goal is to grow its commercial business and not solely rely on government contracts. Having commercial contracts focused primarily on the health care, energy, and manufacturing sectors is positive news. However, due to intense competition, Palantir will have a hard time capturing any significant market share in these different sectors. In a statement, the company also said it does not intend to do business in China. That may hurt the company's revenues and profitability.
Data security and siloing are the other issues that could hurt Palantir. Lastly, one of the current risks of Palantir is that it used to have more than half of its revenue coming from the government. That is a very serious concern at any time.
Conclusion: to buy Palantir or not?
As stated earlier, we do not offer personal advice on Palantir stock buy or not. We foresee a further price decline in the short term. This is why we do not buy Palantir stock at this time. We find the uncertainty regarding earnings growth detrimental. Moreover, there are plenty of other interesting investments at the moment. Buy Palantir stock or not you should do it anyway based on a long term horizon. With patience, this company could grow into a major player.
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