Palantir Stock Is Doomed to Trade Sideways for the Foreseeable Future

Investors appeared pleased with Palantir’s (PLTR) 2Q21 earnings, sending shares up by 11% in the subsequent session last week. Looking at the results, there’s no doubt the big data specialist delivered the goods. Palantir reported strong metrics across the board and provided confidence boosting guidance.

This is a company that notches big deals with big customers and 2Q20 was no different. Government wins included deals with the U.S. Army, and Coast Guard, including a SOCOM deal worth $100 million. The commercial segment also outperformed and Palantir saw out the quarter with 20 net new commercial customers with the division’s revenue increasing by 28% year-over-year and accelerating on the 19% uptick of 1Q.

Palantir’s strategic investments counted for 7 of the 20 adds and amounted to $543 million – or 59% – of total TCV (total contract value) signed.

RBC’s Rishi Jaluria notes the company’s strong performance and anticipates “continued strength in commercial driven by investments in sales and marketing as well as product enhancements.”

However, the investments are a bit of a sticking point. The company has poured $100 million into a growing number of SPACs as part of its investment strategy, using the deals as a way to drive business from up-and-coming companies that utilize Palantir’s big data analytics software.

But, considering the small size of some of these SPACs, Jaluria has “questions around the sustainability of some of these strategic investments.”

Throw in an overheated valuation and Jaluria finds it hard to recommend investors pile in right now.

“Stepping back,” said the 5-star analyst, “We came out of the quarter positive on Palantir’s continued product enhancements and GTM investments and, while we think PLTR has good technology and appreciate its deep customer relationships, we view shares as fairly valued at 28x EV/2022E revenue, and have concerns around the sustainability of growth, especially given some of its recent SPAC investing.”

As such, Jaluria rates Palantir shares a Sector Perform (i.e. Hold), along with and a $25 price target, indicating the shares will remains range-bound for the foreseeable future. (To watch Jaluria’s track record, click here)

The rest of the Street clearly thinks Palantir stock is going nowhere at the moment, as the current $23.80 average price target indicates. On the rating front, with 3 Sells, 2 Holds and 1 Buy the stock has a Moderate Sell consensus rating. (See Palantir stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Marty Shtrubel
Marty Shtrubel was born in the UK, raised in Israel, and then headed back to London, where he made music and pursued a career in sound recording. After a move back to Tel Aviv, he set off on a new path and now works as a financial blogger at TipRanks.