Palantir had an IPO in Sept. of 2020, and since going public, the stock has increased over 140% from its first day price. The firm still has lots of growing to do, and the stock looks like a great long-term investment.
Government agencies and enterprises generate a huge amount of data. And all that data can be used to gain a big advantage over their competitors. But using data on that scale is very difficult.
Palantir solves this issue with its software combo: Foundry and Gotham. The latter was built for government agencies in the intel and defense sectors, while the former was created to help commercial clients. Both have one goal: They make it possible to analyze, integrate, and make sense of large datasets. This lets clients make better decisions about their business.
Management estimates the total market size to be at $119 billion, and that means Palantir is at the head of a large opportunity.
Even better, in April 2020, Palantir agreed to a $10 million deal with the U.S. Space Force. The newly created Space Force will utilize Palantir’s Foundry software for sensor data and tracking space objects.
Also in 2020, Palantir got a $91 million contract with the U.S. Army to use Foundry and Gotham to train AI models, expanding its AI potential.
In the commercial space, Palantir announced a new agreement with IBM to offer Palantir’s software on IBM’s cloud platform, making it easier for businesses to build AI-powered software.
These agreements — and the many others made last year — could be very large growth drivers for Palantir.
Palantir had only 139 customers in 2020, with average revenue of $7.9 million per customer, up 41% from 2019. This means Palantir’s sales are concentrated and vulnerable. But despite this, Palantir has increased its revenue at a steady pace over the past two years.
The company is also not currently profitable, because it is investing heavily into its operations. Operating cash flow was negative $297 million in 2020.
But with $2 billion in cash and equivalents, the company can afford to lose some money while it grows. As Palantir’s client base enlarges, the company has the possibility to be very profitable, as shown by its 68% gross margin.
Palantir costs 38 times trailing 12-month sales. That pricey valuation, combined with a lack of profitability, has led to volatility — the price is currently lower almost 50% from its 52-week high.
But for investors willing to stand that volatility, this looks like the perfect time to buy the company. Palantir has a huge market opportunity, and the company’s history of partnering with the government on classified work is a testament to its potential.
Author: Steven Sinclaire