Is Palantir Stock a Buy in 2023? An In-Depth Analysis

Palantir Technologies (NYSE: PLTR stock) is a software company specializing in big data analytics. Founded in 2003, Palantir has quickly become one of the leaders in leveraging data to solve complex problems for commercial and government clients.

In the past year, PLTR stock price has seen tremendous growth, rising over 180% amid strong financial results and increasing adoption of its Foundry data analytics platform. However, some analysts and investors remain skeptical about the stock’s high valuation.

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This article provides an in-depth analysis of Palantir stock to determine if it’s a good buy for 2023. We examine PLTR’s financials, growth prospects, valuation metrics, competitive advantages, risks and expert opinions to offer a balanced perspective.

Financial Performance

Palantir has achieved strong top line growth in recent years. Total revenue grew 47% year-over-year to $1.9 billion in 2022. Government revenue expanded 54% to $897 million, while commercial revenue grew 32% to $1 billion[1].

Q3 2023 results beat expectations with revenue up 22% and net income doubling year-over-year[2]. Palantir has also been profitable on an adjusted basis since Q1 2022, a major milestone.

However, revenue growth is expected to decelerate to around 16% in 2023 amidst macroeconomic uncertainty[3].

Key financial highlights:

  • Total revenue (TTM): $2.13 billion
  • Revenue growth (YoY): 23.6% (2022)
  • Net income (TTM): $147 million
  • EPS (diluted): $0.07
  • Operating cash flow: $133 million (Q3 2023)

So while growth is slowing, Palantir has scale, profitability and strong cash flows in its favor.

Growth Drivers

Palantir is poised to benefit from several secular trends:

Government Spending: Budgets for defense, intelligence and homeland security continue growing post-pandemic. Palantir is embedded in these domains with long-term contracts. Renewals and expansion of existing contracts provide a stable base for growth[4].

Commercial Adoption of AI/ML: Investments into AI and machine learning are ramping up as companies seek to leverage data for better decisions and insights. As a pioneer in these technologies since 2003, Palantir is an ideal partner for such initiatives[5].

Digital Transformation: Both public and private sector organizations are modernizing IT infrastructure and accelerating cloud migrations – playing into Palantir’s strengths in data integration, analytics and cybersecurity.

Geographic Expansion: Palantir sees ample room for growth across the US, UK and EU. Investments in sales and marketing will drive greater penetration in these markets.

As long as these tailwinds persist, Palantir has a visible pathway to sustaining strong growth despite economic volatility.

Competitive Advantages

Palantir differentiates itself from analytics competitors through various competitive strengths:

Innovative Technology: Its Foundry platform combines the best of AI/ML, data management, analytics, security and privacy – enabling users to integrate, analyze and act on data like never before[6].

Domain Expertise: 17 years of experience solving the hardest problems for complex organizations has honed Palantir’s expertise in domains like aerospace, healthcare and manufacturing[7].

Hybrid Model: Palantir straddles government and commercial sectors – leveraging innovations from one to advance the other. This provides uniqueness and diversification.

Customer Loyalty: Once Palantir’s software is embedded within client operations, it becomes indispensable due to the high costs of switching. Expansions and renewals provide efficient growth.

By innovating ahead of competition and entrenching itself with customers, Palantir has built durable competitive advantages. Sustaining this lead will be key going forward.

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Valuation and Price Targets

With a price-sales ratio of 25x and price-earnings ratio of 274x[8], Palantir stock certainly looks expensive based on traditional valuation methods.

However, its high growth warrants a premium valuation. Palantir tops its industry and market in terms of revenue, EBITDA and EPS growth over the past 5 years[9]. Adjusted for growth, its PEG ratio of 0.85x is reasonable relative to software peers.

According to 14 Wall Street analysts, the average 12-month price target is $13.25 which represents a potential downside of 27.6% from current levels[10]. However, analysts have been consistently wrong about Palantir given difficulty modeling its unique hybrid business model.

A reasonable price target range seems to be $15 on the low end and $25 on the high end. Upside potential may be capped in the near term given economic uncertainty. However, if growth trends stabilize in 2024, further upside is likely.

Risks and Challenges

While optimism reigns among retail investors, there are several risks worth considering:

Overvaluation: The biggest concern is that current valuation multiples embed overly optimistic growth assumptions. Any growth stumbles could lead to a sharp correction.

Customer Concentration: The top 20 customers account for almost two-thirds of revenue. Losing any major customer would significantly impact Palantir’s results[11].

Recession Impact: Budget cuts and reduced IT spending during a recession poses risks to Palantir’s growth trajectory. Less resilient commercial businesses may pause analytics investments.

Competition: Larger analytics competitors like Databricks, Snowflake and Microsoft have vastly greater resources to leverage. Palantir must continually innovate ahead to stay competitive.

Profitability: While adjusted operating margins are positive, Palantir continues investing heavily for growth. Path to sustainable long-term profitability remains unclear.

Palantir’s strengths seem to outweigh these risks for long-term investors. However, near term volatility is likely given economic uncertainty.

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pltr stock – Expert Opinions

Bulls Say: Palantir is a generational software company that’s achieved product-market fit. Its technology leadership in analytics positions it attractively for secular growth trends[12]. Profitability and potential S&P 500 inclusion provide catalysts for re-rating[13].

Bears Argue: Growth is slowing substantially while valuation remains demanding. Palantir faces risks from customer concentration and rising competition. Stock price already reflects optimistic assumptions[14].

My View: I’m bullish on Palantir’s long-term potential based on its competitive strengths. However, I’m neutral for next 12 months amidst economic uncertainty. I would look to build a position on pullbacks below $15. Upside optionality makes it a good stock to hold for the long run.

pltr stock Conclusion

In summary, Palantir Technologies seems to have a bright future given its product leadership in analytics/AI and strong customer retention. Long-term secular tailwinds can potentially sustain double-digit growth.

However, downside risks remain in the near term if growth falters. The stock seems fairly valued currently. Investors should wait for better entry points before building a long-term position.

Upside optionality and uniqueness of Palantir’s model makes it a good buy-and-hold stock for 5-10 years. But restraint is warranted in the next 12 months amidst macro volatility.

Author: Dominic Walsh

I am a highly regarded trader, author & coach with over 16 years of experience trading financial markets. Today I am recognized by many as a forex strategy developer. After starting blogging in 2014, I became one of the world's most widely followed forex trading coaches, with a monthly readership of more than 40,000 traders! Make sure to follow me on social media: Instagram | Facebook | Linkedin | Youtube| Twitter | Pinterest | Medium | Quora | Reddit | Telegram Channel

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