IPO Analysis: Is Palantir Technologies a Good Buy Right Now?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 22nd Mar 2021 11:55 GMT+1

Since the start of 2020, several companies have gone public via an IPO (initial public offering). These companies enter the equity markets to raise capital and fund their growth initiatives. So, it gives investors an opportunity to buy shares of a high-growth company and benefit from exponential gains over the long-term.

Here, we look at one such recent IPO- Palantir Technologies (NYSE: PLTR) and analyze the company to gauge if it’s a good stock to buy right now.


Palantir Technologies- An overview

Palantir Technologies builds and deploys software platforms for the intelligence community in the U.S. it assists various organizations in counter-terrorism investigations and related operations. Palantir Gotham is a software platform for government operatives part of the defense and intelligence verticals.

The platform allows users to identify patterns within datasets that range from signals intelligence sources to reports from confidential informants. It also helps operators plan and execute real-world responses to threats identified within their platform.

Palantir Foundry is another platform that creates a central operating system for organizational data and allows users to integrate and analyze this data.


Recent quarterly results

In the fourth quarter of 2020, Palantir reported $322 million in sales and earnings per share of $0.06. Wall Street forecast the company to report revenue of $300 million and earnings of $0.02 in the December quarter.

It closed 21 deals worth at least $5 million and 12 contracts worth at least $10 million in Q4. Palantir confirmed revenue from the government business accounted for $190 million in sales. It closed deals with several large-cap companies including BP (NYSE: BP), Rio Tinto (NYSE: RIO), and PG&E (NYSE: PG). The company also secured a major deal with IBM (NYSE: IBM) earlier this year.

In 2020, the company’s sales rose by 47% year over year to $1.1 billion. During its earnings call, Palantir’s management forecast revenue growth of at least 30% in 2021, and it expects to touch $4 billion in annual sales by 2025.

Its average revenue per customer soared 41% to $7.9 million in 2020. Further, the average revenue from the top 20 clients climbed 34% to $33.2 million. We can see Palantir has successfully managed to cross-sell additional services to customers.

Palantir’s revenue growth has allowed it to expand the bottom-line at a fast clip. Its gross margins stood at 72% in Q4 of 2019 and it rose to 84% in Q4 of 2020. Similarly, the company’s contribution margin rose from 33% to 62% in this period. Comparatively, it reported an operating margin of -31% in Q4 of 2019 which improved to 32% in Q4 of 2020.


Valuation is a concern

Unlike most recent IPOs, Palantir is profitable on an adjusted basis. However, it's still trading at a steep price to sales multiple of 42.2x and a price to earnings multiple of 150x. While growth stocks command a premium, any sell-off in the broader markets will drag Palantir stock lower as well.

Analysts tracking Palantir have a 12-month average target price of $26 which is 8.3% higher than its current trading price.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.