3 Minute Analysis: Palantir

3 Minute Analysis: Palantir
Carl Hazeley

almost 2 years ago3 mins

Mentioned in story

Palantir Technologies’ (PLTR) shares have dropped over 60% in the past six months, so let’s use the Markets tab in the Finimize app to quickly see whether it’s worth buying into.

Value: Is Palantir cheap or expensive?

Palantir’s stock trades at an enterprise value to sales (EV/sales) multiple of 6.1x versus the US stock market’s 3.8x, a price-to-earnings (P/E) ratio of 42x versus the market’s 19x, and offers a free cash flow yield of just 1% versus the market’s 3.6%.

Conclusion: Palantir’s stock is much more expensive than the market, which isn’t usually a good look. But it might be if the company’s fundamentals justify its valuation…

Quality: Does Palantir have strong fundamentals?

Palantir doesn’t have a long enough financial history to look at its five-year sales history, but it has grown sales an average of 44% in the past two years – much faster than other US firms. On the other hand, its profit margin of -20% leaves a lot to be desired versus the US’s almost 20% average.

Conclusion: Palantir’s impressive sales growth but large losses are typical of high-growth tech companies, but investors have already shown they have much less appetite for risky stocks right now. And since that’s not likely to change soon, it’s hard to believe that its steep valuation is justified.

Risk: How risky is Palantir?

Palantir’s beta of 2 means it tends to move twice as much – both to the up and downside – as the wider market. The stock is volatile too: its 90% measure is more than double the market’s 40%.

Conclusion: Palantir is a very risky stock. And while that risk could pay off if markets rise, it could seriously cost you if they fall.

Sentiment: What do other investors think about Palantir?

Investment bank analysts, on average, rate Palantir’s shares a “hold”. In other words, they’re neither overly positive nor overly negative about them right now. But that alone could be a bad sign, because investment bank analysts typically lean toward positive or “buy” ratings. A hold or neutral rating is sometimes as good as a sell.

On the other hand, our measure of insider buying is positive: execs connected with Palantir are buying up shares in the company, suggesting they’re feeling more optimistic.

Conclusion: Investment bank analysts aren’t hot on Palantir’s shares, but this insider buying activity may be a more valuable signal than it would be at other companies, given how secretive Palantir is about its business and customers.

Should you buy Palantir?

Palantir’s current fundamentals and valuation don’t screen favorably, and the stock is clearly a riskier bet than others in the US market. So you mightn’t want to buy in right now, and if you hold the stock already, you’ll want to revisit your previous analysis.

The one reason to buy in based on our Markets data would be insider buying activity. It suggests they’re more optimistic than other investors, which could be because they’re seeing Palantir make bets that are set to improve its fundamentals. And since it’s such a volatile stock, anything that does improve its fundamentals would probably send the stock rocketing.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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