Following a downgraded rating by Morgan Stanely, Palantir stock plummeted on Wednesday, but that is only the tip of the iceberg.
Palantir Technologies has made a lot of headlines this year, like helping the U.S. Department of Health and the British National Health Service control the flow of coronavirus related data, or more controversially when it provided technology for the controversial U.S. deportation scheme run by the U.S. Immigration and Customs Enforcement (ICE) and with the UK’s Brexit borders.
Straight off the mark, that first paragraph should have some warning flags fluttering in your brain.
Why the big dip on Wednesday though? Well, Morgan Stanley downgraded the stock to underweight from equal weight, describing the firm as trading at a “significant premium” compared with its peers, with its stock more than doubling since it went public on September 30.
That’s just the very tip of the iceberg though.
Is Palantir a good investment?
Palantir is an interesting stock to look at, for whilst its technology has been vital for many world-changing organizations such as the World Food Programme and COVID-19 resources, unfortunately, it’s hard to ignore the morally questionable uses of its technology, which includes surveillance, predictive behavior technology, and data mining.
However, if you’re not too concerned about these things, perhaps its numbers can paint a bigger picture:
- For a company that has been around for 17 years, Palantir is still not profitable and never has been.
- In August, the company openly admitted that it “may not become profitable in the future” in its S-1 filing.
- Palantir reportedly lost $580 million in 2019.
- In its first-ever public quarterly report in November, it reported a loss of $0.94 per share vs a loss of $0.24 a year earlier.
- For the third quarter, the company reported an operating loss of $847.8 million
- Palantir only has 125 clients, over half of which are estimated to be governmental.
You don’t need to be an analyst for Morgan Stanley to see the danger here. Is that fluttering warning in your brain becoming a full-on gale yet?
That’s not to say that it’s stock is doomed to fail; far from it.
In Q3, Palantir brought in $163 million from sales to governments, whilst commercial revenue was around $127 million. The data company also brought in a couple of new contracts for Q3 which included a $36 million deal with the National Institutes of Health and a $91 million deal with the U.S. Army to provide research and development for the Army’s research laboratory. It is also growing quickly with 52% revenue growth year-over-year. Another plus is that with only 61% of total revenue being generated from the company’s top 20 clients, so the revenue stream is becoming less concentrated. The same 20 clients generated 68% of total revenue in 2019.
Despite this, for me there is still a lot of grey surrounding Palantir, making it a truly peculiar and unpredictable stock. And I haven’t even breached the surface of it all or talked about its controversial leader, Peter Thiel.
You can get a full read-up on our opinion in the MyWallSt app from when Palantir filed to go public here. If you don’t have an account, simply sign up for a free trial and take a look around.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.