Palantir Technologies inc. (NYSE:PLTR) stock is among the greatest trading stocks in recent times. It fluctuates in severe up and down swings, and our traders have made a fortune, particularly by selling premium (i.e., puts and calls). We have backed the technology as a game changer. This highly inventive and disruptive organization with significant clout in commercial and government spheres.
That is not a technical finance phrase in the literature, but it is a term heard frequently in hedge funds and trading floors. The company works with the most significant currency of our time: big data. And while the organization innovates and assists its clients in understanding data and making decisions, this has been a terrible waste of money, a whole disaster. While we believe in the company’s long-term ability to produce, and we hold part of it, it has been a complete disaster for longs who are not trading in and out. While we have risen from the abyss, there are still many retail “bag-holders” out there.
Trading Not Investing
The only people who profit from Palantir stock are those who trade in and out. Due to the volatility, you can make good money by holding a core investment, selling calls, or even selling puts. Those who sell nickels and dimes do well. Those that are trapped near the bottom take a beating. But trading here demands enormous patience, and while we consistently win trades, we know that investors are getting slammed.
Pressure Mounts
Unfortunately, despite a market resurgence, this is still a trader’s market, and we believe that is the best way to approach Palantir for the time being. That said, we believe you can retain a small core stake for the long term. Still, with all the challenges confronting the company, from dilution to a questionable management team, the economic picture has been negative for Palantir, exacerbating the situation. Governments are cutting back on spending. Businesses are tightening their belts. While we believe that businesses appreciate the money-saving potential of decision-making algorithms, we believe that company capex on things like this is the first to be cut when businesses tighten their belts.
This is a short-term problem, but issues like dilution are long-term. The problem is that we believe you should trade this name. We hate to see investors lose money, and we understand how difficult it may be. Still, in our honest opinion, it’s been total garbage. Is there any hope here?
Palantir Earnings Figures Mixed.
The recently reported quarter’s performance was mixed on the top and bottom lines, with revenue slightly ahead of consensus projections but profitability falling short. Total revenue increased 25.9% year on year to $473.0 million, exceeding expectations by a little over $1 million. However, profitability was $0.04 lower than predicted, and the projection was considerably below expectations. That effectively ended the stock’s momentum. Revenue growth is now just in the 20% level, as opposed to 30+. Ouch. Furthermore, while most expected the corporation to generate a small profit this quarter, it lost money. Ouch.
Palantir Expenses Are on the Rise, But Cash Flow is Positive.
While margins were strong, adjusted expenditures were increasing. Expenses were $365 million, up 11% year on year. Despite margins, the revenue figure and increasing expenses resulted in a loss in the quarter. As previously stated, adjusted earnings per share were a loss of $0.01. Some of this was due to a $0.05 impact, mostly due to losses on securities held.
Palantir generated $314 million in adjusted free cash flow in the previous year. The company also earned $62 million in cash from operations and $61 million in adjusted free cash flow. This was the seventh quarter in a row with positive free cash flow. The balance sheet is far from garbage. Palantir still has $2.4 billion in cash and cash equivalents, with no debt. The company recently decided to enhance its revolving credit facility by adding a $450 million new incremental delayed draw term loan facility. Overall, they have an additional untapped liquidity source of up to $950 million. To summarize, the company has liquidity if needed.
We explain this since this corporation is not at risk of going bankrupt. The investment may be bad because consistent positive eps is elusive, but the balance sheet is good.
Palantir Stock Valuation
When we look at Palantir’s stock valuation, the bottom line is that the stock is pricey to hold. Looking at standard p/e ratios is pointless, but if you did, you’d see a stock at around 170x fwd eps. Very expensive. Perhaps a better metric is the price-to-sales ratio, but not only is it still very high, but the market has stated that it is no longer willing to pay for sky-high multiples in 2022. Please keep this in mind. The stock is cheaper than it has ever been at 10.4x sales, but it is far from “cheap.” we like the cash flow numbers. However, the price-to-cash flow ratio remains around 70x.
Take home
We like how the company has no debt and a positive free cash flow. The organization provides excellent solutions for government and enterprises by leveraging big data and analytics to improve operations. However, stock investments have been wiped off. Traders have won numerous times. While growth will continue and the financial sheet is strong, we must monitor client growth rate and contract values. We’d be buyers if the price fell to around $8.
Featured Image: Megapixl @Burdun
