Recent IPO Palantir Technologies (PLTR) fell 9% on Nov. 9, after reporting mixed third-quarter results before the open. It’s now trading near seven-month lows.
The software provider’s earnings met Wall Street targets, while sales beat forecasts. Palantir also added more customers than expected — but the stock fell as government revenue growth missed.
After the report, RBC Capital analyst Rishi Jaluria downgraded Palantir stock to underperform. “Government, to us, is the strongest part of Palantir’s business and while we expected a deceleration, the growth rate was nearly cut in half from Q2 to Q3,” Jaluria said in a report.
Government agencies, the chief growth driver, use Palantir software for intelligence gathering, counterterrorism and military purposes. The Denver-based company has been aiming to grow its commercial customer base by expanding into the health care, energy and manufacturing sectors.
And Palantir is now entering the digital cryptocurrency market, for which it recently released new software.
“We are super excited about Foundry (software) for crypto,” Chief Operating Officer Shyam Sankar said on the Q3 earnings call. “We think we’re going to be a massive accelerant for crypto companies.”
He added: “We’re going to give them credible AML (anti-money laundering) platforms to enable them to go toe-to-toe and beyond with the legacy players. We’re going to deliver (regulatory) compliance so they can focus on disruption. And, of course, they are welcome to pay us in crypto.”
Palantir was founded in the early 2000s by PayPal (PYPL) co-founder Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp. The company name is derived from the palantiri, crystal ball-like “seeing stones” from The Lord of the Rings.
The Denver-based company offers three platforms: Palantir Gotham, used primarily by government agencies; Palantir Metropolis for banks, financial services firms and hedge funds; and Palantir Foundry, used by corporate clients.
To speed up corporate adoption of artificial intelligence software, Palantir and IBM (IBM) announced a global partnership earlier this year. Under the deal, Palantir made its Foundry software available to IBM’s cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.
PLTR Stock Fundamental Analysis
IBD Stock Checkup assigns Palantir a 29 Composite Rating. This proprietary rating gives investors a quick way to gauge a stock’s key growth traits. Palantir belongs to the 120-stock enterprise software group, which includes DocuSign (DOCU), Salesforce.com (CRM), Shopify (SHOP) and Zoom Video (ZM).
A 61 Earnings Per Share Rating, part of the overall composite score, also lags. That could improve, however, as Palantir is expected to stay profitable after earning 9 cents a share last year. Analysts expect EPS of 15 cents this year, followed by a 40% jump to 21 cents next year.
On Nov. 9, before the opening bell, the company reported Q3 adjusted earnings of 4 cents a share on revenue of $392 million. Analysts estimated EPS of 4 cents on revenue of $385 million.
Government revenue rose 34% to $218 million from the year-earlier period, missing views for $235.9 million. Commercial revenue rose 37% to $174 million, topping estimates for $148.6 million.
Palantir said it added 34 net new customers during the period, up from 20 in the second quarter. It ended Q3 with 203 customers, topping estimates of 180.
For the current quarter ending in December, Palantir forecast revenue of $418 million. That’s above analysts estimates for $402 million in revenue, according to FactSet.
PLTR Stock Technical Analysis
PLTR stock is nearly 60% off its Jan. 27 peak. But it’s still up more than 150% from its Sept. 30, 2020 debut, when Palantir launched a direct listing priced at 7.25 a share.
In a traditional IPO, companies create new shares, underwrite them and sell them to the public. A direct listing creates no new shares and sells only existing, outstanding shares with no underwriters involved.
Palantir stock quickly formed a four-week IPO base, which it cleared in late November. After a 191% run from the 11.52 buy point, the stock built an eight-week consolidation. A subsequent breakout yielded a 34% gain from the 33.60 entry, before shares began pulling back.
Palantir stock’s Relative Strength Rating has fallen to 16, which puts it in the bottom 84% of all stocks. The relative strength line, which compares a stock’s performance to the S&P 500, is also heading south.
Its E Accumulation/Distribution Rating points to more net selling vs. buying by mutual funds.
As of Sept. 30, 699 mutual funds owned Palantir stock, up from 556 in June. Those earning an A+ from IBD include Vanguard Growth Index Investor (VIGRX), Rydex Technology Fund (RYTIX) and American Beacon ARK Transformational Innovation Fund (ADNPX).
Recent IPO Palantir continues to post double-digit sales growth and turned its first yearly profit last year. The software maker is working to expand its commercial business. It recently released software for the digital cryptocurrency market.
Palantir stock fell below its 50-day moving average after its Q3 results, according to IBD MarketSmith chart analysis. In late September, it triggered the 7%-8% loss-cutting sell rule from a 26.04 buy point of a cup with handle.
Until Nov. 9, PLTR had been working on a new consolidation with a 29.39 buy point. It’s now below that entry, as well as its 50-day and 200-day lines. While it’s been trading tightly recently, you’d like to see a prior uptrend before a proper base can take shape.
So, it’s not a buy right now. A 29 Composite Rating and 61 EPS Rating are also lower than you’d like to see with most growth stocks. But it may be worth keeping an eye on Palantir as it enters new markets.
Don’t forget to watch the overall market, too. It’s currently in a confirmed uptrend, which means investors can buy leading stocks at proper buy points. Read The Big Picture for detailed daily market analysis.
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Follow Nancy Gondo on Twitter at @IBD_NGondo
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