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Palantir Stock Is Going to Give Ground Before It Moves Markedly Higher

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Tezcan Gecgil
·5 min read
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Data-mining-software company Palantir Technologies (NYSE:PLTR) stock started trading on the Big Board on Sept. 30 following a direct public offering (DPO). In this direct listing, there were no new shares of Palantir stock offered. Instead, existing shareholders were allowed to sell their stocks to new investors.

Palantir Technologies (PLTR) headquarters
Palantir Technologies (PLTR) headquarters

Source: Sundry Photography / Shutterstock.com

The New York Stock Exchange initially set a reference price of $7.25 per share, but on its first trading day, Palantir stock opened at $10 and closed at $9.50.

On Nov. 27, Palantir stock saw a record high $33.50 and are now flirting with $25.

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Denver-based Palantir was founded in 2003 by a group of executives led by Peter Thiel, founder of PayPal (NASDAQ:PYPL). He was also one of the early backers of Facebook (NASDAQ:FB).

Palantir’s initial works, especially with government agencies such as the Central Intelligence Agency (CIA), have been regarded as controversial and even secretive.

Today’s article looks at what investors can expect from the company. Although PLTR is relatively overvalued, those investors with a long-term horizon can regard any dip toward $22.5 or even below as an opportunity to go long PLTR stock. Here’s why.

Government Contracts and Palantir Stock

Since 2003, Palantir has expanded the customer base to other governments as private corporations. For instance in November 2019, Palantir and Japan based insurer Sompo (OTCMKTS:SMPNY) formed a joint venture together. Then in June 2020, they launched the “Real Data Platform for Security, Health and Wellbeing.”

Recent academic research by Roxana Akhmetova of University of Oxford, claims the “partnership is problematic” because Thiel is a Trump adviser.

In September, Palantir was awarded a $44.4 million worth, three-year contract by the U.S. Food and Drug Administration (FDA). It will provide data management and analytics services to the FDA’s Center for Drug Evaluation and Research (CDER), which focuses on potential new medicines.

Beginning of December, Palantir announced a cooperation with the government of Greece. The country is working on improving its COVID-19 response efforts by integrating more data and analytics in the decision-making process.

Recently, Palantir has developed a tool for the U.S. government for monitoring the manufacturing of coronavirus vaccines as well as their distribution.

The UK National Health Service has also been working with Palantir. In the summer, CNBC reported, that Britain’s NHS gave Palantir access to millions of UK residents private personal data. Palantir recently signed a two-year contract with the NHS. It will now provide the organization a software platform for data processing.

In fact, a recent company press release highlights, Palantir is “supporting a diverse range of institutions as they respond to the COVID-19 pandemic and adapt for the future.”

How Palantir’s Recent Earnings Came

In mid-November, Palantir released Q3 results. Revenue was $289.4 million, up 52% YoY. Net loss of $853.3 million translated into diluted net loss per share of 94 cents.

As of Sept. 30, the total of cash and equivalents were $1.8 billion. Management raised full-year 2020 revenue guidance to a range of $1.070 billion to $1.072 billion, up 44% YoY.

The company emphasized its international expansion in the quarterly statement. Co-founder and CEO Alexander C. Karp cited, “Sompo’s work is vital to Japan’s welfare and security, and Kengo Sakurada, the company’s group chief executive officer, has been a critical and trusted partner as we work with Sompo to expand our reach in Asia.”

Palantir stock’s forward P/E, P/S, and P/B ratios are 208.33, 42.58, and 37.0 respectively.

PLTR stock is frothy, even for a growth stocks that is able to get an important number of government contracts. Given the metrics, it is currently one of the most expensive software stocks on the Street.

For instance, the trailing P/E and P/B ratios for the SPDR S&P Software & Services ETF (NYSEARCA:XSW) are 30.62 and 6.63.

The Bottom Line

Palantir is a growth stock and is likely to create shareholder value for many years to come. However, it is richly valued and expensive. Therefore long-term investors could consider buying the dips, especially if the price declines toward $22.50.

Are you currently a shareholder? You may think of initiating a covered call position in PLTR stock. Then, you could possibly protect some of your paper profits. For example, an ATM covered call that expires on Jan. 15 would decrease portfolio volatility and offer some downside protection.

Investors could also consider by an exchange-traded fund (ETF) that also holds Palantir stock in its portfolio. Examples include the Renaissance IPO ETF (NYSEARCA:IPO), the First Trust U.S. Equity Opportunities ETF (NYSEARCA:FPX), the Vanguard Mid-Cap ETF (NYSEARCA:VO), the ARK Next Generation Internet ETF (NYSEARCA:ARKW), or the BNY Mellon US Small Cap Core Equity ETF (NYSEARCA:BKSE).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.

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