When Palantir first came public, it was met with a degree of skepticism and mystery. The company had long been famous for its connections to government and intelligence. But since its public markets debut, Palantir has largely disappointed.
The early pop in 2021 to $35 per share has long faded and now, sitting under $10 per share, the share price hovers around its IPO level. With little fanfare surrounding the stock now it’s easy to skip past. But right now might just be precisely the best time to look a little closer at this very unique company.
One characteristic of Palantir that should immediately make it interesting is that Stanley Druckenmiller owns it. Stanley has never had a down year so he’s well worth paying close attention to, and his long term affiliation with Alex Karp, CEO of Palantir, should be a stamp of approval all by itself. But there are more reasons to buy Palantir than an illustrious list of existing shareholders.
The Mystique of Palantir
Most recently, Palantir has grown in notoriety for helping Ukraine repel the much mightier armed forces of Russia. Alex Karp can’t comment on the specifics but broadly has stated that the application of intelligent software by a smaller nation can be hugely impactful when confronted with the might of a larger nation attacking it. Really what he’s referring to is how software can be used to identify weak points in the defenses of the attacking nation and make an outsized impact.
This isn’t the first time Palantir has famously used its advanced algorithms to great effect in warfare. Most notably, the CIA relied on Palantir to locate Osama bin Laden.
The “secret sauce” that Palantir employs includes:
- Gotham, which helps military and law enforcement; and
- Foundry, to support the commercial sector
Palantir Apollo is the company’s primary technology. It is a SaaS application that is flexible enough to be applied to many environments, though it’s fair to say the company’s customer count has not grown especially fast until recently at least.
Share Price Declines but Financials Impress
It’s not apparent from top line numbers why Palantir stock has had such a tough time. The revenue growth has been impressive:
- 2021 Q1: $341M
- 2021 Q2: $375M
- 2021 Q3: $392M
- 2021 Q4: $432M
- 2022 Q1: $446M
- 2022 Q2: $473M
In an environment where macro headwinds are blowing harder than ever, this kind of quarter over quarter growth cannot be ignored.
Better yet, operating income losses have steadily been declining:
- 2021 Q2: -$146M
- 2021 Q3: -$91M
- 2021 Q4: -$58M
- 2022 Q1: -$39M
- 2022 Q2: -$41M
And it’s not as if the company has a poor balance sheet either. Quite the contrary, Cash on the balance sheet is about 10x debt: $2.3B of cash vs $216M of long-term debt.
Perhaps the most exciting aspect of Palantir’s story now is the growth appearing in its commercial sector. At last count, commercial revenue grew by 46% while commercial customers grew 3.5x.
So Is Palantir a Buy?
When we ran the numbers, it became clear that, while the stock is out of favor, the underlying business is in good shape, growing more rapidly than when its customer mix was tethered to government.
We calculated a minimum upside of 18.7% to $9.41 per share at the time of research. The reality, however, could be much brighter when the “story” gets out of how good Palantir’s fundamentals are.
If you’re looking for a company whose leadership is heavily connected to both government and commercial sectors, with attractive growth and upside potential, you could go much further wrong than go to scoop up Palantir shares at these levels.