Still invested in Palantir Technologies (PLTR) ? Me too. Oh, don't get me wrong. I wasn't at the highs back in January into February of this year. I did, however, buy the dip once the shares sold off, and have been managing a sideways to lower than sideways trade ever since. Honestly, I can't complain. I mean I could complain that a supposed growth stock dependent upon, or lucky enough to rely upon, government contracts as its sales driver has been really stable for most of the past year, and lent itself towards being quite manageable. When stocks trade sideways, traders who are also investors can trade around a core position, extracting capital while keeping the name on the books.
Even with all my learned (and unlearned) talents, with the stock having lost all three of the moving averages that I follow most closely (21 day EMA, 50 day SMA, 200 day SMA), and then drifting lower as portfolio managers are forced to reduce risk at least that last level... and markets in general have been reducing "growthy" type risk as higher interest rates, while maybe not pending, are certainly singing from afar, and can now be heard by at least some. Because you were going to ask, I am currently -7% (composite result of all trades) on what is at this moment about 70% of a full position.
So, the question is... pony up some more dough and get this position closer to being full-sized? Or get the heck out of Dodge while I still have most of my shirt? It's not like the market is about to fall in love with stocks priced in trailing sales and not future earnings because the number is easier to conceptualize.
Earlier this month, Palantir secured an additional $43M contract from the Space Systems Command's Cross-Mission Ground & Communications Enterprise. This contract builds upon previous awards, and brings the cumulative face value of this deal up to $91.5M. This award provides continued capabilities for Project Brown-Heron enabling all-domain situational awareness and decision making at NORAD. Palantir, under this contract, will continue delivery of its data and decision platform (Warp Core) to support national security objectives.
Two weeks later, the firm announced that the U.S. Army had opted to exercise the second year option for their partnership on the Army Vantage program for $116.3M. The contract runs back to December 2019 with a base year and three option years. This is the second of those three option years. The program uses data analytics to boost readiness and controlled access to army data sources.
This (Monday) morning, Palantir and Dewpoint Therapeutics have announced a partnership to help power Dewpoint's efforts to discover treatments and cures for the most challenging diseases. This is a multi-year deal - I don't see a dollar amount - that starts out as Palantir's most comprehensive partnership to date with any biotech company.
We know the knocks on Palantir. The stock is expensive. Trading at 92 times forward earnings, 24 times trailing sales and 16 times book, this is plain to see. Investors are paying for growth. Revenues grew 36% year over year for the third quarter, after growing at least 43% for each quarter prior going back a year and a half. The firm has guided the current quarter toward $418M in revenue, in line with Wall Street. That would be annual growth of just 30% over Q4 2020, but the firm has expressed confidence in being able to produce annual sales growth of 30% or greater for each year through 2025.
There are those who point out that Palantir is too heavily dependent upon the federal government, which is both good and bad. While it would be nice to have a more diverse clientele, it is also nice to have a very large, stable client, capable of creating both policy and co-influencing money supply. For the third quarter, U.S. commercial revenue increased 103% year over year, meaning that private sector business is growing almost three times faster than is the government contract business, so the firm's business is naturally balancing. Commercial customer count increased 46% year over year. Cash from operations totaled more than $100M for the second quarter of the last three, while free cash flow per share printed in positive territory for a third consecutive quarter.
One thing Palantir has is cash, a ton of cash. Cash, equivalents and short-term investments as of the September quarter totaled more than $2.5B. This amounts to 89% of current assets and 78% of total assets. This number absolutely dwarfs the liability side of the balance sheet less equity. There are entries for Unearned Revenue and Capital Leases, but none for long-term debt. This firm can meet all of its obligations several times over out of its pocket. Palantir's current ratio stands not just above the "one" or even the "two" level, but above four. This balance sheet is golden.
I can find seven sell side analysts rated at five stars by TipRanks who cover Palantir. It's not pretty. Among the seven, we have one "buy" or buy equivalent, three "holds" or hold equivalents, and three "sells" or sell equivalents. The average target price among the seven is $23.14, with a high of $31 (Brent Thill of Jefferies, who is the "buy.") and a low of $18 (Tyler Radke of Citigroup, who is a "sell."). What I find interesting is the $24 price target of Keith Weiss of Morgan Stanley who is one of the "sells." Weiss is actually an "underweight", but increased his price target from $22 to $24 in November, when that was close to the last sale. Weiss either needs to upgrade the stock or rescue his target. Currently the $24 level would represent a 31% run from this morning's prices. Hardly a "sell" or an "underweight" kind of move.
Whether one is a fan of either Relative Strength or the Full Stochastics Oscillator, this stock appears to be technically oversold. There has been a downward trend in place that has been supported in the high teens. The low of May ($17-ish) is crucial. What I am interested in seeing is the level of fund support. The most recent data I have (September) shows 17% fund ownership spread across 691 funds. That was up from 549 funds back in June.
That said, readers can see in early November (after earnings) when the share price fell out of contact with the three most important (my opinion) moving averages. That, to me, is clearly where at least some PMs threw in the towel. Where do they buy this name back? From here down to $17. It has to at least be something that some of them are thinking about. Not the passive funds. They're useless unless you want to be average. I mean the stock pickers. I will be adding to this name right here, and down to $17 if it goes there.
- Target Price: $26
- Pivot: $22 (50 day SMA)
- Add: Down to $17
- Panic: $15.50 (more than 8% discount to last add)