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Big data. Big government contracts. And a big market entry.
Since going public at the end of September, Palantir (PLTR) has made its presence felt. Shares are up by 177%, giving the company a premium valuation when compared to even other fast-growth SaaS names, and decidedly higher multiples than those commanded by traditional government contractors.
Everything about Palantir says big, from its data platform to the huge deals to its bulky valuation. In fact, the market it addresses is huge, too.
Palantir puts its TAM (total addressable market) at $119 billion, which means it currently has a penetration rate below 1%, therefore, indicating plenty of room for growth.
Although the company has been working toward gaining smaller sized customers, the problem with Palantir’s current big model means it is heavily reliant on only a small subset of clients, and government ones, at that.
This factor was on William Blair analyst Kamil Mielczarek’s mind when he initiated coverage of Palantir with a Market Perform (i.e. Hold) rating.
Explaining his apprehension when considering Palantir as an investment in the current environment, Mielczarek said, “While we are optimistic about Palantir’s ability to maintain strong growth in calendar 2021, the changing U.S. government administration and the company’s historically volatile commercial segment growth rates leave us concerned about more rapid deceleration in outer years. If revenue growth decelerates closer to the growth rates achieved in 2017 and 2018, then the downside for the stock could be significant.”
Although since its foundation in 2003, Palantir has operated through several U.S. presidential administrations, the company’s greatest success was during the tumultuous Trump years.
In fact, Palantir’s annual revenue run-rate with the U.S. Army expanded from $8 million in 2018 to more than $158 million by 2020.
And during the Trump administration, Mielczarek notes, the Department of Defense and U.S. federal government were “highly politicized.” A Biden administration, says the analyst “may not be as favorable.”
Palantir has set its sights on becoming, “the operating system for the Department of Defense,” but Mielczarek thinks the DoD is “hesitant to become captive to Palantir or any one vendor.”
“There is the potential that the government continues to use scores of vendors for its data analytics platforms,” the analyst further said, “Which may cause Palantir’s revenue growth in future years to fall short of expectations.”
So that’s William Blair’s view, what does the rest of the Street make of Palantir’s prospects? Not much, actually. The stock currently has a Moderate Sell consensus rating based on 1 Buy, and 3 Holds and Sells, each. At $17.33, the average price target suggests shares will be changing hands for a 33% discount over the next 12 months. (See PLTR 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.