Palantir Technologies Inc. (PLTR) is engaged in building and deploying software platforms for the intelligence community to assist in counterterrorism investigations and operations.  The company has made several developments over the past few months. The National Institutes of Health's (NIH) National Center for Advancing Translational Sciences (NCATS) awarded a contract to PLTR on October 4th to continue providing a secure cloud-based data enclave to centralize data on COVID-19 for collaborative clinical research. In addition, the company launched Foundry for Builders on July 20.

The stock has gained 157% over the past year. However, it has lost 13% over the past month and 5% over the past three months. It is currently trading 48.4% below its 52-week high of $45, which it hit on January 27, 2021. 

Last month, the United Kingdom government announced that it is ending a deal with PLTR, following criticism from privacy groups about the lack of transparency on how the contracts were awarded. Its director Spencer Rascoff sold a total of 100000 shares in September 2021. In addition, hedge funds recently turned less bullish on the stock. So, PLTR’s near-term prospects look bleak.  Here’s what could influence PLTR’s performance in the near term:

Questionable Business Practices

On August 30, 2021, it was announced that corporate litigation boutique Bronstein, Gewirtz & Grossman, LLC is investigating whether PLTR and certain of its officers and/or directors have violated federal securities laws. This is in connection with the New York Post entitled “FBI Palantir glitch allowed unauthorized access to private data,” published on August 25, 2021. This could impact the stock negatively.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

PLTR’s total revenue increased 49.1% year-over-year to $375.64 million for the second quarter ended June 30, 2021, driven by 90% year-over-year growth in U.S. commercial revenue. However, the company’s loss from operations increased 47.4% year-over-year to $146.15 million. Its net loss came in at $138.58 million, representing a 25.5% year-over-year rise. Also, its loss per share came in at $0.07 compared to $0.17 in the year-ago period.

Lofty Valuation

In terms of forward non-GAAP P/E, PLTR’s 142.71x is 494% higher than the industry average of 24.02x. Likewise, the stock’s forward EV/S and P/S of 30.24x and 30.12x are higher than the industry averages of 4.08x and 3.92x, respectively. Moreover, its 96.47x forward EV/EBITDA is 524.3% higher than the industry average of 15.45x.

POWR Ratings Reflect Bleak Outlook

PLTR has an overall rating of D which equates to Sell in our POWR Ratings 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 different categories. PLTR has a D grade for Sentiment, in sync with analysts’ expectations that its EPS will decline 55.6% for the quarter ended September 30, 2021, and 20% in fiscal 2021.

The stock has a D grade for Stability. Moreover, PLTR has an F grade for Value, consistent with its higher-than-industry valuation ratios.

PLTR is ranked #13 out of 15 stocks in the Software – SAAS industry. In addition to the POWR rating grades I’ve just highlighted, we have also rated it for Growth, Momentum, and Quality. Get all the PLTR ratings here.

Bottom Line

Even though PLTR has made recent developments, with the help of its Gotham and Foundry platforms, the lack of new government contracts indicates a concern. It is currently trading below its 50-day and 200-day moving averages of $25.97 and $23.71, respectively, indicating a downtrend. Moreover, analysts expect its EPS to decline in the current quarter and the current year. So, the stock looks overvalued at the current price level and is best avoided now.

How Does Palantir (PLTR) Stack Up Against its Peers?

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

PLTR shares were trading at $23.21 per share on Tuesday afternoon, up $0.04 (+0.17%). Year-to-date, PLTR has declined -1.44%, versus a 16.97% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

More...