Long-term readers of Profit Confidential would know that we like tech stocks a lot here, but we’re not big fans of going after the most hyped-up tickers.
The reason is simple: when a stock achieves astronomical gains very quickly, it almost always experiences pullbacks, and those pullbacks can be quite substantial.
And that’s why we haven’t talked much about Palantir Technologies Inc (NYSE:PLTR)—until now.
Palantir, which is in the enterprise software business, completed its initial public offering (IPO) on September 30, 2020.
Palantir stock traded sideways for most of October 2020. Then in November, it shot up to as high as $33.50 before closing the month at $27.11. In that month, the stock surged by 168%.
PLTR stock consolidated again in December 2020 and the first half of January 2021. Toward the end of January, though, shares of Palantir Technologies Inc exploded to the upside. On January 27, the stock price reached an intraday high of $45.00.
But as we can see in the below chart, Palantir stock wasn’t able to sustain its price at that high level. In fact, the stock has retraced a sizable portion of its previous gains.
Trading at $23.44 per share at the time of this writing, PLTR stock is about 48% below its all-time high.
Palantir Technologies Inc (NYSE:PLTR) Stock Chart
Chart courtesy of StockCharts.com
It seems that Palantir stock has found some support in the $21.00 to $22.00 region. In previous consolidation periods, the stock bounced off that region quite a few times. If there’s enough momentum for PLTR stock to bounce off that critical area again, we might see another swing to the upside.
Most importantly, Palantir stock could be an opportunity because, fundamentally, the company is solid.
In 2020, an extraordinary year for many industries, to say the least, Palantir’s revenue grew by 47% to $1.1 billion. (Source: “Palantir Reports Revenue Growth of 47% for Full Year 2020, Expects Q1 2021 Revenue Growth of 45%,” Palantir Technologies Inc, February 16, 2021.)
In the same year, the company generated an adjusted operating income of $190.0 million. This marked a huge improvement from 2019, when it incurred an adjusted operating loss of $334.0 million.
Palantir’s data analysis software serves both the public and private sectors. In 2020, the company generated 56% of its total revenue from government customers, with the remaining 44% coming from commercial customers. (Source: “Business update – Q4 2020,” Palantir Technologies Inc, last accessed April 6, 2021.)
Note that Palantir’s customers come from a wide range of backgrounds. In just the fourth quarter of 2020, Palantir signed contracts with PG&E Corporation (NYSE:PCG), Rio Tinto plc (NYSE:RIO), and a Fortune 50 health-care company. Palantir has also been working with the U.S. Army, Navy, and Air Force.
Again, the theme here is growth. In 2020, Palantir’s average revenue per customer was $7.9 million, up 41% from 2019. Moreover, the number of customers generating more than $10.0 million in annual revenues rose 50% year-over-year.
One of the concerns about Palantir Technologies Inc is that it might be relying too much on its top customers. While the company has indeed been generating substantial and increasing revenue from its top 20 customers, the concentration issue has actually improved recently. In 2019, Palantir’s top 20 customers accounted for 67% of its total revenue; in 2020, their share of the revenue fell to 61%.
The best part is, although Palantir Technologies Inc has delivered impressive growth numbers, this is likely just the beginning. As of December 31, 2020, the company’s customers included eight members of the Fortune 100, 12 members of the Global 100, and 24 members of the Global 300. That means there’s still a huge market for the company to tap into.
Financially, Palantir’s management expects the company to deliver revenue growth of 45% in the first quarter of 2020 and at least 30% revenue growth for the full year. They project that, by 2025, the company’s revenue will reach $4.0 billion or more.
Palantir Technologies Inc’s growth story is just unfolding. PLTR stock has pulled back substantially from its all-time high.
If the company can achieve what it sets out to do—meaning quadrupling the size of its business in the next five years—I wouldn’t be surprised to see Palantir stock hop onto a major uptrend.