Palantir (NYSE:PLTR)
According to data provided by S&P Global Market Intelligence, Palantir (NYSE:PLTR) stock dropped 25.2% in August.
Not only did high-growth technology companies drop after the Jackson Hole address by Federal Reserve Chair Jay Powell, but Palantir also released earnings around the same time. Although the previous quarter’s results were in line with expectations, the stock price plunged because of a weaker-than-expected outlook.
What’s the Reason?
The revenue guidance from Palantir (NYSE:PLTR) of $474 million to $475 million for its fiscal third quarter was much lower than the $505.6 million predicted by analysts, and full-year revenue was also lower than projected.
The culprit was a halt in sales to the United States government, which is still a significant customer for Palantir (NYSE:PLTR). Since the deployment of large government contracts may be somewhat unpredictable, the various U.S. agencies are delaying them for the time being. It’s worth noting that during the analyst call, management emphasized that its modest forecast did not account for any additional significant government contracts that could be awarded between now and the end of the year.
However, according to the company’s chief legal officer, “when companies across the world face greater pressure and suffer more pain, the rate of spending will slow down, and sales cycles will lengthen, but it will also disclose holes in businesses’ operations, gaps our software can remedy.”
The commercial sector did better than the government sector, increasing by 46.3% year-on-year compared to the government sector’s 13.3% increase. Palantir’s commercial clients, who are increasingly turning to big data applications for insights and competitive advantage, may be concealing the traction the company is getting from government customers, which accounted for 55.6% of sales in the second quarter.
However, investors have been particularly harsh recently, which is terrible news for high-growth but loss-making technology businesses like Palantir. That feeling has only deepened after Powell’s hawkish speech at Jackson Hole, in which he suggested that the Fed may maintain higher interest rates for longer. That’s not good news for growth stocks, as they don’t start making money until a long time from now.
What’s Next?
Palantir (NYSE:PLTR) could be an attractive option for investors seeking high-growth software stocks that have been punished by the recent shift in the interest rate regime. It has a long history of working with the United States military, and in light of the increasing global danger landscape, government contracts, while delayed in the short term, should continue to come through.
Meanwhile, it was heartening to see expansion in the business sector, which bodes well for Palantir’s prospects. Palantir has no debt and $2.4 billion in cash, putting it in a solid position to continue investing in growth despite any short-term economic slowdown. Compared to other extensive data software stocks, its price tag of 8.6 times revenue and 7.5 times sales is not too steep when valued at the company’s total assets.
While Palantir (NYSE:PLTR) is among the many currently loss-making businesses, the future profitability of such enterprises, and by extension, the company, is anyone’s guess. This is why the prices of these equities have fluctuated so wildly this year. It’s also a concern that Palantir’s generous share-based incentive programs for staff and executives might cost investors a lot of money.
Therefore, Palantir (NYSE:PLTR) should be on the radar of anybody seeking cheap growth companies, while it’s by no means a guaranteed bet.
Featured Image- Megapixl @Burdun
Author Shariq Khan 