October 4, 2022
pltr stock analysis

We all know all about PayPal (PYPL),
but today we shall be shedding some light on another lesser-known venture by
Paypal’s Co-founder, Peter Theil, known as Palantir
Technologies (PLTR).

So, what is Palantir
Technologies?

Well, it is essentially an
American big data analytics company that also happens to be among the few exceptional
companies in the world that have an impact level 6 DoD SRG authorization. What
that means is they have been given the authority to transfer, store and manage classified
data for their clients.

As a result, they are
mostly involved in the security industry, which further enabled the company to obtain numerous government contracts such as defense contracts, army units’ contracts, and contracts with large American corporations with
classified data.

Q2 Earnings Report Analysis

Before the markets opened
on 8th August 2022,
Palantir released their much-awaited second-quarter
earnings report
. Following this release, the Palantir stock dropped by 15.6% in premarket trading.

Let’s take a look at why
that happened and what the stock’s further prospects look like.

For starters, the data
analytics company’s plunge can be attributed to the company falling short of
both its forecasts and analyst’s expectations. They published Earnings Per
Share (EPS) loss of 1 cent/share as
opposed to the forecasted EPS profit of
3 cents/share
.

This may seem like a
small deviation for such a big reaction by the market but it’s important to
realize that the difference may just be of 4 cents/share but that turned it
from a profit position to a loss position and these things play a major role in
stock market psychology.

The company did however
beat revenue expectations and reported a revenue
of $473 million
vs. the $471.3
million that was expected
this quarter. The revenue is seen to have risen 26% year over year, while their commercial revenue grew 46% year over
year.

Albeit, this revenue
growth suggests a good trend since the company has a handsome gross profit
margin of about 80% but the psychological element of the EPS loss outweighed
this gain which was seen as a minimal rise when compared with the forecasts.

According to Palantir’s
CFO David Glazer the company missed its target due to a lack of sufficient
investments in marketable securities. Despite initial criticism, there may be some
truth to this as although the company fell short of a pivotal expectation, it
is noteworthy to highlight their cash
reserves
which stand at a whopping $2.52
billion
with no debt hanging over this reserve.

You can learn more about how to understand earning report in the video below:

How to understand Earnings Report

Palantir Stock Price

The overall trend in
PLTR’s stock price this year suggests that the stock is headed in a nose dive. But
let’s take a closer look.

If we look at the portion
starting right after they released their Q1 results and ending just before the
Q2 report was released, the stock price actually rose from $6.44 to $11.45. Now, this rise in stock price was interpreted by
the market from two completely opposing perspectives.

To some, it seemed like a
justifiable recovery in a growth stock while to others this indicated signs of
a bubble forming around the stock as for them such a rise in stock price was
unjustified, especially after the less than satisfactory Q1 results.

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Palantir stock price chart

Conclusion

Amid the ongoing
geopolitical issues, recession risk and rising inflation rates, the entire
stock market has suffered a blow, and Palantir despite the negative trend still
managed to make some headway during this time.

Palantir is a company that
falls under the category of growth stocks. They have both a strong liquidity
position and a balance sheet that is tough enough to weather the current storm.
What’s more, is that as a defense contract holder Palantir’s revenues could very
well see a rise as the war in Ukraine has augmented defense spending in all
NATO nations including the United States.

To conclude, the stock
has faced a setback after its current Q2 earnings report but if you look at its
long-term potential the future may very well be bright for the stock.

As the legendary investor
Benjamin Graham says:

“The
intelligent investor is a realist who sells to optimists and buys from
pessimists.”

The current pessimism
surrounding the stock may be a good opportunity to cash in on. However, since
no one can predict the bottom of the ensuing bear market, we suggest using the
Dollar-cost-averaging (DCA) technique to slowly invest over the next few months
and lower your average cost of buying.

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