PLTR is properly valued and a solid growth investment. I'm going to jump into why I believe this to be the case. We are going to look at PLTR's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in PLTR then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis.
If you're not familiar with PLTR then here is a quick summary, feel free to jump past this part.
“Palantir Technologies Inc. builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations."
PLTR Stock Recent Volume Comparison
I'm usually more of a fundamental investor but I also think there are some technical indicators that help provide additional; content when making an investment, which is why we will look at recent volume.
Comparing PLTR's most recent volume to their average monthly volume can help us derive some valuable insights. Firstly, PLTR's average volume over the past 2 trading days is sitting around 38.83M, which is lower than their average monthly trading volume of 54.2M.
PLTR's low relative volume suggests that price movements are not expected to be as variable, which is unattractive for traders. This does not mean prices will not go up or down, but the movements/trends are likely to be less significant.)
PLTR Valuation and Stock Rating
Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if PLTR is considered undervalued or overvalued.
Analysts of PLTR have given an overall rating of 4, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below.
PE Rating: Currently, analysts have given PLTR a PE rating of 1. This is the lowest ranking and implies that the PLTR stock is currently overvalued. The PE rating factors in the trailing, current, and future PE Ratio of the PLTR stock. In the case of PLTR, analysts think that PLTR is overvalued given their P/E ratios, relative to the average P/E ratio of their peers.
ROE Rating: Currently, PLTR has been given an ROE rating of 3 by analysts. This is the average score achieved via an ROE rating. An average rating such as PLTR's could also indicate that their management team is similar at managing inventory, cash flows, and business operations better than the management teams of PLTR's peers.
DCF Rating: We have saved the best (and most influential) rating for last. PLTR has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, PLTR's score of 5 is very good, implying the outlook for PLTR is very positive, and their stock is currently undervalued.
Based on these metrics we can see that PLTR seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in PLTR. That being said, I want to look at some other metrics and factors.
Recent and Upcoming PLTR Earnings
Some people like to “play” earnings, but I tend to look at historical and upcoming PLTR earnings to analyze or re-analyze my investment. Typically, a beat will cause the price to jump, and a miss will lead to a drop, but we've seen a few cases recently where it's been the opposite. Either way, let's look at PLTR
Historically, PLTR has beat their earnings 33.33% of the time. This track record is not very good and allows us to assume that they are likely to miss their estimates. However, when PLTR beats their earnings, they tend to do so in a large way averaging a beat of 275%, which is a very significant amount.
PLTR's most recent earnings release came on Feb 16th, 2022, in which PLTR reported an EPS of $0.02, which was -50% better than their EPS estimate of $0.04.
We can assume that PLTR will miss their next earnings based off of the probabilities. However I would not recommend betting against them going into earnings, as if they do beat you are likely to get burned in a bad way.
PLTR Stock Key Ratio Analysis
There are 7 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the PLTR stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of Palantir Technologies Inc.'s business, as well as what their future might look like.
EPS: EPS is one of (if not) the most commonly used in finance. PLTR's EPS is currently -0.84, which means that for every outstanding share of PLTR they make $-0.84 in net income (after tax). EPS figures can be manipulated by the company, as there are accounting practices that can be used to hide unfavourable expenses/figures, so don't look at this figure as the “be all end all”
P/E Ratio: The P/E ratio is another very popular financial ratio that is used very commonly. This ratio is used in conjunction with EPS, as the P/E ratio is simply the price of the stock divided by its EPS. As a general rule of thumb (explained by Peter Lynch in his book “one up on wall street”), a company's P/E ratio should be roughly equal (or higher) to their growth rate. In the case of PLTR, they have a P/E ratio of -56.03, while their EPS growth rate (3Y) is 22.53%. Since their P/E ratio is nowhere near their average EPS growth rate, we view PLTR as an unattractive investment.
ROE: A company's ROE is the return a company can receive by projects/investments funded by their shareholder's equity (how well they can turn money into more money). A high ROE is typically favourable, unless it is unusually high, then you may have to do some further investigation. ROE's over 15% are considered to be good, and PLTR's ROE is currently at -26.81%. This is low, and indicates that PLTR are making ad investments with their shareholder funds. This makes sense to me as PLTR has taken some very aggressive and risky positions in gold and SPAC's recently.
Debt-to-Equity: A company's Debt-to-Equity ratio shows us how much debt a company is carrying relative to the amount of shareholder's equity they have. By taking a quick look at this figure we can determine if a company's debt levels are potentially risky and need further investigation into. If a company's D/E ratio is above 2.5, we may want to analyze their debt to determine if they will be able to pay it all back (avoiding defaults). PLTR's current D/E ratio is 0.43 which is healthy, and signals that we may not need to dig too far into their debt.
Interest Coverage Ratio: This figure is often used in conjunction with the D/E ratio in order to determine if a company can handle their current level of debt. This metric shows us how well a company's earnings can be used to cover their debt obligations. A high Interest Coverage Ratio indicates that a company should have no problem paying off their debts, and a low coverage ratio may indicate future debt/insolvency problems. PLTR currently has an interest coverage ratio of -104.82, which means that their earnings cover their interest payments -104.82 times over. This number does ot make sense on the surface, however it indicates that PLTR is very likely to run into problems when attempting to meet their future debt obligations.
EV/EBIT: The EV/EBIT ratio is like the P/E ratio in the sense that they are measures of the value that you are receiving for purchasing a stock at its current market price. Using the EV/EBIT ratio (rather than the P/E ratio) is beneficial as it factors in the company's debt. A lower EV/EBIT ratio indicates that the stock is close to its fair value, and potentially has more intrinsic value than other stocks. Currently, PLTR has an EV/EBIT ratio of -53.11, meaning that it will take -53.11 years in order for PLTR to generate enough income to reach their current enterprise value. This also doesn't make any sense on the surface, due to PLTR being a growth stock, and not having solidified and reliable earnings.
Operating Margin: A company's operating margin measures the profitability of the company's operations. This metric is most important when using it to compare to peers of a company. This is due to the fact that different industries have different level of profitability. However, if your company's operations are more profitable than your peers, you have an advantage and are a more attractive option. Currently, PLTR's operating margin is -35.54%, in comparison to the Software—Infrastructure industry's average operating margin of 31.88%.
Why I Think PLTR is Undervalued/Overvalued
Overall, I think that the PLTR stock is fairly valued. This is due to PLTR overall stock grade being ranked a 4 (indicating undervalued), their 33.33% track record of beating earnings (indicating potential overvaluation), and the fact that only 1/7 key ratios are good (indicating overvaluation).
Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!