Palantir Technologies Inc. (PLTR), the leading AI software firm, unveiled its fiscal first-quarter earnings on Monday, May 6, 2024, with the top-line results exceeding analysts’ expectations while the bottom-line matched forecasts. Palantir’s CEO exuded enthusiasm about the company’s performance, stating, “We are on fire.”

In the three-month period that ended March 31, 2024, PLTR reported a revenue of $634.34 million, up 20.8% year-over-year. Its non-GAAP EPS increased to $0.08 from $0.05 per share in the year-ago period. According to CNBC, Wall Street had expected revenue of $625 million and earnings of 8 cents per share.

Further, the company’s gross profit rose 24.1% from the year-ago value to $518.08 million, while its adjusted income from operations improved by 81% year-over-year to $226.46 million. PLTR’s net income soared 453.9% from the same quarter last year to $106.07 million, marking the largest quarterly profit in the company’s twenty-year history.

Additionally, its adjusted EBITDA stood at $234.89 million, up 76% year-over-year. However, its cash and cash equivalents reduced to $520.39 million as of March 31, 2024, compared to $831.05 million as of December 31, 2023.

Buoyed by its stellar first-quarter performance, PLTR has revised its full-year outlook upwards. The company anticipates revenue to range between $2.68 billion and $2.69 billion, an increase from its previous projection of $2.65 billion to $2.67 billion. It also revised its U.S. commercial revenue guidance to exceed $661 million, reflecting a growth rate of at least 45%.

In a letter to shareholders, chief executive officer Alex Karp said, “We anticipate that our U.S. commercial business, which accounted for 24% of our revenue last quarter, will remain one of the most significant drivers of our growth in the near term.” Moreover, due to its sustained and growing profitability, the company anticipates achieving adjusted free cash flow between $800 million and $1 billion in 2024.

On the news front, there’s plenty for investors to mull. On April 4, 2024, Oracle Corporation (ORCL) and PLTR announced a cloud computing alliance aimed at improving efficiency, performance, and sovereignty for businesses and governments worldwide. Earlier this year, Palantir secured a $178 million contract with the U.S. Army to aid in the development of a next-generation, field-deployable sensor station.

Despite a solid revenue beat in the first quarter and remarkable success in marketing its AI products to both the government and private sectors, Palantir’s weaker-than-expected full-year guidance has contributed to the post-earnings slump. Nevertheless, the stock has surged 24.4% year-to-date and returned an impressive gain of 188.1% over the past year.

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

Favorable Analyst Estimates

Street expects PLTR’s fiscal 2024 EPS and revenue to increase 30.5% and 21.3% year-over-year to $0.33 and $2.70 billion, respectively. In fiscal 2025, its EPS and revenue are expected to reach $0.39 and $3.24 billion, registering a year-over-year growth of 19.9% and 20.1%, respectively.

Similarly, analysts expect PLTR’s EPS for the quarter ending June 30, 2024, to increase 56.8% year-over-year to $0.08. Its revenue for the current quarter is projected to be $652.67 million, indicating an increase of 22.4% from the prior-year period. It is no surprise that the company has surpassed both EPS and revenue estimates in three of the trailing four quarters.

Valuation Metrics Alarmingly Above Industry Norms

PLTR’s forward Price/Sales ratio stands at 17.65x, 522.7% above the industry average of 2.83x. Similarly, its forward EV/Sales ratio of 16.33x exceeds the industry norm by 475.9%, and its forward non-GAAP P/E ratio of 65.60x is 175.4% higher than the industry average of 23.82x. Moreover, PLTR’s forward EV/EBITDA multiple of 48.25 is 219.5% greater than the industry average of 15.10.

High Profitability

PLTR’s 81.16% trailing-12-month gross profit margin is 65.6% higher than the 48.99% industry average. The stock’s 8.43% trailing-12-month EBIT margin is 81.7% higher than the 4.64% industry average. Furthermore, its trailing-12-month net income margin, ROCE, and ROTA of 12.79%, 9.19%, and 6.21% are substantially higher than the industry averages of 2.41%, 3.19%, and 1.36%, respectively.

POWR Ratings Exhibit Mixed Prospects

PLTR’s stance is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR’s stock is trading below its 50-day moving average of $23.37 but above its 200-day moving average of $18.98, justifying its C grade for Momentum. Yet, the stock also received a D grade for Stability, corresponding with its 24-month beta of 2.04.

PLTR is ranked #17 out of 18 stocks in the A-rated Software - SAAS industry. Click here to access PLTR’s Growth, Value, Sentiment, and Quality ratings.

Bottom Line

PLTR has already tapped into the AI opportunity with government sectors, focusing on intelligence gathering, counterterrorism, and military applications. With a strategic shift toward leveraging generative AI for commercial endeavors in healthcare, energy, and manufacturing sectors, the company now aims to capitalize on broader market opportunities. Meanwhile, the global Software as a Service (SaaS) market is forecasted to exceed $ 1.20 trillion by 2032, growing at a CAGR of 18.4%.

While there is optimism surrounding PLTR’s potential to capitalize on these forecasts, stretched valuation suggests that waiting for a better entry point into the stock could be beneficial.

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

While PLTR has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) and B (Buy) rated stocks within the Software - SAAS industry: DocuSign, Inc. (DOCU), Vimeo, Inc. (VMEO), and Informatica Inc. (INFA). To explore more Software - SAAS stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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PLTR shares were trading at $21.48 per share on Wednesday afternoon, up $0.08 (+0.37%). Year-to-date, PLTR has gained 25.10%, versus a 9.18% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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