Palantir Technologies (NYSE:PLTR)
Palantir Technologies (NYSE:PLTR) will always be a controversial stock.
Many people are unhappy with its role in international conflicts and domestic initiatives in the United States and Europe. Employees at Palantir have occasionally raised concerns about the legality of specific contracts.
After Palantir’s (NYSE:PLTR) direct listing in 2020, analysts began calling it a contentious stock for reasons that went well beyond politics. The business model has been criticized for two significant flaws.
The first concern was whether or not Palantir (NYSE:PLTR) actually developed software. Of course, the Denver, Colorado-based firm creates software. However, Palantir (NYSE:PLTR) has long been accused of being more of a consulting firm than a software company due to the individualized nature of its solutions and the large number of engineers needed for installation. In April, one zealous bull even addressed those worries.
The second was that most of Palantir Technologies (NYSE:PLTR) funding came from the United States government. Assuming the political neutrality of these deals, government revenue still doesn’t expand at a rapid clip.
Company executives acknowledged in private that this was a legitimate worry. Palantir, however, has prioritized expanding its commercial market presence practically since going public, if not before.
The earnings report from the previous week was discouraging, and the valuation remains unclear. However, Palantir Technologies (NYSE:PLTR) is worth a close examination for growth investors. Shares have dropped by around two-thirds from their 52-week peak.
Palantir Responds to Its Critics
Gross margins for 2019 were 67%, down from 72% in 2018, as reported by Palantir in its Form S-1. The corporation cited increased staff expenses and the repricing of stock options as contributing factors.
In all likelihood, The company’s custom-built solutions necessitated those costs indicative of a consulting firm rather than a standard SaaS (software as a service) provider.
However, the 67% was far lower than the 80% or above produced by several major software firms. Investors paid 20x sales (or more) for faster-growing software equities because of worries that Palantir wouldn’t achieve the same operating margins.
Growth in Palantir’s (NYSE:PLTR) software products has been accompanied by an increase in the company’s gross margins. In 2021, it was 78%, and in the first part of this year, it was near 79%.
The outcomes have also improved in areas where people depend on the government. Business income doubled between 2020 and the first half of this year.
Still, Palantir (NYSE:PLTR)shares have failed to deliver sustainable profits. The stock was initially priced at $10 per share in 2020 but has since dropped to its current price of $9.43.
Reasons to Invest in PLTR Stock
Despite the company’s 2022 forecast, PLTR’s stock price is still more than eight times its revenue. The corporation expects an adjusted operating profit, but that number does not include a large amount of stock-based compensation. This cost amounted to $295 million in 2018, close to the operating profit forecast for the entire year ($341–$343 million). Stock compensation exceeded 30% of sales in the first half.
On the conference call for the second quarter, CEO Alex Karp said the company wouldn’t turn a profit until 2025. The enterprise value is still around $16 billion at that stage, and the company has plenty of room to expand.
Even so, this firm has the potential to be a good investment. Evidently, the new software platforms are thriving. As the Q2 call’s keynote speaker, Karp made a passionate case for his company and (indirectly) shares. Increasing worldwide dangers, according to Karp, only increase the value of Palantir’s offerings, which have left the competition in the dust.
Suddenly, Palantir’s CEO underscored that fact, saying that the company had just signed up “several customers…who, quite honestly, didn’t like us,” including the United States government.
You won’t get an answer like that from your average CEO. But for Karp and the Palantir Technologies (NYSE:PLTR) bulls, that’s the whole purpose. PLTR isn’t like other businesses, so it shouldn’t be valued like one. For the time being, at least, Karp and the bulls have been correct about the state of the economy.
Featured Image: Megapixl @Michaelvi
Author Shariq Khan 
