Analysts from the Motley Fool recently discussed the performance and potential of Palantir Technologies (PLTR), rating the company based on various criteria including market position, management, financials, and stock valuation.
Palantir Technologies receives cautious ratings from analysts
Jason Hall rated Palantir’s business performance a seven out of ten, citing the company’s proficiency in utilizing advanced machine learning and AI to analyze data. He acknowledged Palantir’s notable achievements, including the involvement in locating Osama Bin Laden, but expressed concerns about the company’s market size relative to optimistic projections. Lou Whitman offered a lower score of six, highlighting that Palantir’s growth rates since going public have underwhelmed expectations, with some rates approximately half of what was promised at the IPO. He noted that much of the company’s growth in commercial sectors is linked to its investments in other companies, which may impact sustainability.
Whitman pointed out that Palantir’s business model is not cost-competitive, possibly hindering growth. However, Hall emphasized that Palantir’s commercial sector, particularly in the U.S., is accelerating, with customer onboarding outpacing revenue growth.
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When assessing management, Hall rated it a seven while Whitman rated it a six. Both acknowledged CEO Alex Karp’s strong opinions on data privacy and national defense, which can be polarizing. Hall found Karp’s candidness refreshing, while Whitman felt it limited the potential score. Both noted that the company has three enduring founders, which reflects continuity and innovation over two decades.
In financial assessments, Lou documented an eight out of ten while Hall awarded an 8.5. They discussed rapid revenue growth, increasing margins, and substantial customer expansion. Palantir’s free cash flows have more than doubled in the past year, supporting its financial health. However, there are concerns about the company’s stock-based compensations, which reached half a billion dollars over the last year and significantly increased the share count since the IPO.
Addressing valuation, Hall expressed a seven for safety, highlighting that Palantir operates at a high price-to-sales ratio of 57 times, which could pose challenges for market returns. While they project a potential growth of five to ten percent in the stock’s performance over the coming years, they caution that it may not present a safe investment. Whitman concurred, noting that despite Palantir’s strong business fundamentals, the current valuation appears excessively high.
On the topic of competitors, Hall mentioned Confluent as a noteworthy company in the commercial data space, while Whitman pointed to Leidos Holdings in the defense sector, citing their broader offerings and competitive advantages as a potential edge over Palantir.
Ultimately, Palantir received an overall score of 6.8 from Hall and Whitman, reflecting a cautious assessment given its strong business capabilities contrasted with high valuation risks.
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Featured image credit: Palantir
