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Palantir Goes Hot and Cold With Great Revenue and Bad Downgrades

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We’re a week out from when data analytics company Palantir (NYSE:PLTR) reported its third-quarter earnings. PLTR stock remains down nearly 15% from its pre-earnings close. They’re also down over 40% from the highs they reached at the end of January. Despite the drama over the past 11 months, PLTR is virtually flat compared to its 2021 open.

A close-up shot of a hand on a screen with the Palantir (PLTR) logo.
A close-up shot of a hand on a screen with the Palantir (PLTR) logo.

Source: Ascannio / Shutterstock.com

Given everything that’s been going on with PLTR stock in 2021, is this company now an investment opportunity worth considering? Well, it’s not so cut and dry. At the end of the day, this is a stock that earns a “B” rating in Portfolio Grader. It’s delivering some solid financial numbers. Palantir may scare some investors off, but it’s worth a closer look. When you look past the drama, there is something there.

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Palantir Delivers Another Solid Quarter

On Nov. 9, Palantir reported its earnings for the third quarter.

Among the highlights, the company met analyst earnings expectations with adjusted EPS of 4 cents. Revenue for the quarter beat analyst expectations with $392 million versus $385 million expected. That’s 36% year-over-year revenue growth, which is strong — but it’s losing momentum after two straight 49% YoY revenue growth quarters. However, the company’s revenue guidance for Q4 is $418 million. That’s well above the $402 million analysts were projecting and would bring Palantir’s annual revenue growth rate to 40%.

PLTR stock ended up closing down 9.35% on the day. The punishment continued through the next day’s session.

PLTR Stock Drops on Analyst Downgrade

Despite what would be considered a solid third quarter, where the company met earning expectations and beat analyst revenue projections, PLTR stock quickly dropped. Shares closed at $26.75 (their highest level since the end of September) the day before Palantir delivered its Q3 earnings. By November 10 — the day after that earnings report — PLTR stock closed at $22.52, a two-day slide of nearly 16%. What went wrong?

The big drop seems to be largely in reaction to an analyst downgrade. RBC Capital downgraded PLTR from “sector perform” to “underperform” and lowered its price target from $26 to $19.

Why the souring on Palantir? RBC Capital analyst Rishi Jaluria cited a number of reasons for the downgrade. Among the issues noted were fading Covid-related spending benefits, worry that SPAC-related investment income is not sustainable and concern that decelerating government and commercial business will make the company’s revenue growth targets difficult to meet going forward. In short, RBC Capital feels that Palantir is fully valued at its current share price.

PLTR stock has rallied slightly since the RBC Capital downgrade, but shares are still trading at levels not seen since August.

Bottom Line on PLTR Stock

We know how RBC Capital analyst Rishi Jaluria feels about PLTR stock, but what about other investment analysts? While the company does have its fans, in general there is not a whole lot of optimism out there. Among the analysts polled by the Wall Street Journal, PLTR earns a consensus “underweight” rating. However, their average $23.38 price target is considerably higher than Jaluria’s $19.

In addition to concerns noted by Jaluria, there are other factors that could limit the appeal of Palantir shares. There’s its position as a meme stock — although the most extreme volatility as a result took place in January and February — and, as I wrote in October, few companies are as controversial as Palantir.

However, before tossing aside the idea of investing in PLTR stock, don’t forget about the company’s financial projections. Palantir said full-year revenue growth remains on track for 40%. In addition, the company repeated its projection for annual revenue growth of at least 30% through 2025. That would be a big win for investors. The Fortune 500 median annual revenue growth for companies on the list over the five-year period of 2014 to 2019 was 4.0%. In the 10 years from 2009 through 2019, it rose slightly to 5.3% median annual revenue growth.

A string of 30% revenue growth years in a company with a $45 billion+ market cap would put Palantir in rare company.

PLTR stock isn’t risk-free, but it has real potential to deliver long-term growth. Especially if the company can hit its revenue growth projections. That potential might make it worth adding to your portfolio, especially at its current price.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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