It’s been a brutal twelve months for Palantir shareholders with the stock dropping 34.9%. But on Valentine’s Day loyal shareholders finally were rewarded with good news that spiked PLTR share price by 21.1% after the company reported profit of a single penny per share in Q4 (a loss of $0.03 was expected). Better yet, the company forecast a profitable 2023.
To give you an idea of the tectonic shift this is in financials, just look at how truly awful the numbers have been: In 2018, the company reported EBIT (operating income) of -$599 million. Then 2019 came around and the tally for the year was -$576 million. It didn’t get better in 2020 when operating income ballooned to $1.17 billion.
As that number was slashed in 2021, bulls held out hope. After all, the share price climbed in 2021 to a high of $35 per share, and speculation was rife that Palantir – a highly secretive company – had the makings of the next big thing. The bulls were able to cling to their investment thesis in 2022 that the trend was moving in their favor when the company further slashed operating income losses to “just” $161 million.
But improving financials didn’t translate to a rising share price. Early last month the share price reached lows of just $6 per share, a devastating destruction of shareholder value over the prior couple of years. Fast forward just a few weeks and the share price is already trading close to $10 per share.
It appears now, however, with the turn to profitability that Palantir has a bright future ahead of it. So where will Palantir stock go next?
Palantir Growth HAS BEEN Stalled
The long-standing critique of Palantir is that the company’s sales growth is throttled. It must earn big contracts one-at-a-time, and it has a history of doing so slowly. The company’s value proposition is not well understood by the average investor. What exactly does Palantir do?
The official description is that the company is a data analytics and software company that specializes in providing solutions for data integration, analysis, and security to government agencies, financial institutions, and other large organizations.
Another way of saying that is Palantir’s platform is designed to help its clients make sense of their data by integrating data from multiple sources, cleaning and preparing it for analysis, and visualizing it in a way that is easy to understand.
The company has a long list of customers from intelligence agencies, law enforcement agencies, and the military. Palantir software helps them to analyze and make sense of large amounts of data. It is also used by financial institutions to detect and prevent fraud, and by other firms to optimize supply chains and improve operations.
The real value add of the Palantir platform is to help clients make better decisions by providing them with a deeper understanding of their data, and by enabling them to identify patterns and trends that they might otherwise miss.
A real-life example of where Palantir was used is in Ukraine where the software was able, according to CEO Alex Karp, to effectively combat a more powerful Russian military by using software to nullify the opposition.
How High Can Palantir Go?
With tailwinds in its favor from profitability to positive forecasts, it would seem like Palantir is a buy. Short-term, momentum is likely to push the share price higher. However, the risks to owning Palantir now are very high. We ran a discounted cash flow forecast on the company’s financials and arrived at fair value of $7.98 per share, suggesting the current price is elevated. Or in other words, Palantir is overvalued after its recent move. Of course, short-term there’s a good chance it will become even more overvalued as buyers rush in worried about missing out. For now, we see Palantir as a stock for traders more so than long-term investors.