Palantir (PLTR) - Get Palantir Technologies Inc. Class A Reportshares are currently trading at all-time lows. This is due to a substantial drop of more than 20% following the company''s mixed revenue results and poor guidance for the second quarter (Q2).
Has there been a chance to purchase Palantir''s stock at a discounted rate?
Figure 1:Palantir Stock: Should You Purchase the Dip?
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Palantir''''s Earnings Bloodbath
Palantir''s earnings figures were decent on the surface. Q1 results showed that while it missed its earnings per share estimates by 2 cents, the company reported a profit of $446.36 million, $2.85 million above expectations.
Revenues increased by 31% year over year, above the annual revenue guidance of 30% growth. Commercial U.S. revenues were the highligh,t growing 136% YoY. Operating margins showed an increase of 14% compared to the same quarter last year.
The problem was that the sector''s government business Palantirs'' most valuable segment was slowing down rapidly. Government revenue growth was below the company''s expectations for the second quarter in a row, with just 16% in Q4. In a number, it grew only 26%.
The current revenue consensus for 2022 is 28.7%, contrary to Palantir''s annual growth guidance. However, little detail has been given on how the company intends to increase these numbers, as it has already begun Q1 reporting 7% lower.
The forecast for Q2 was also bleak, according to the market. Palantir''s management is expecting $470 million, which is only a 25% increase compared to Q2 last year. Investors are also dissatisfied with projected operating margins of 20%, indicating further decreases from Q1, when margins were 26% 3% lower than in Q4.
Under Bear Attack
While maintaining his sell recommendation, Wall Street''s tone on Palantir isn''t the most optimistic. Right after earnings, Citi analyst Tyler Radke decreased his price target for Palantir from $10 to $7.
According to Radke, Palantir''s underlying growth continued to decline in the first quarter along with the lowerdown on quarterly revenue estimates. Weak projections below Wall Street estimates are a bearish picture.
Moreover, the analyst said that when adjusted for SPAC revenue, growth statistics are still worse, with minimal growth in commercial agreements as well as incremental decreases in total commercial business revenue.
Another bear, the Deutsche Bank analyst Brad Zelnick, has also reduced his price target for Palantir from $15 to $11. The analyst is a slur of the company''s lack of transparency to which the stock''s compensation boosts profitability and limits the confidence in Palantir''s long-term business.
Zelnick admits that Palantir may grow in the near future, but remains skeptical about the possibility of a lasting impact.
The Bottom Line
Palantir is a traditional example of a long-term growth stock that has been hampered by the current macroeconomic rebound. With the market in fear of a recession, growth stocks like Palantir, who are still struggling to prove viable long-term growth profitability, are naturally avoided by investors.
Despite its current valuation, the stock cannot be considered cheap, even if it has dropped significantly in recent months. Palantir trades at a P/E ratio of 62 times, which indicates a difference of 255% to the wider IT sector.
This high level is to blame for the company''s minimum annual growth goal of 30% by 2025. And as the company proves incapable to follow this trend, the negative market reaction should continue.
The positive long-term forecast for Palantir is the growth of its commercial customers, equivalent to 86 percent YoY growth. However, it will take some time for revenue growth through new customers to be reflected. This might be a viable option in the long run, but it is difficult to be more confident about what can be done elsewhere.
Palantir''s CEO claims that his company has spent nearly two decades preparing for the present moment.
I believe it is possible to invest in Palantir at the current share price for the long term. Palantirs software technology is powerful, but there are many limitations regarding Palantir''s ability to maintain its government and commercial economic growth rate based on its current valuation.
There is no middle ground. Either Palantir''s shareholders who have patience will witness strong growth in the long run, or the stock will plummet further until it meets a valuation more consistent with the sector.
(Disclaimers: this is not investment advice. This author may be long one or more stocks mentioned in this report. Besides, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)