Palantir Technologies Inc. (PLTR) builds software platforms that help organizations integrate their data, decisions, and operations at scale. The company operates through two segments: Commercial and Government. The Commercial segment serves customers working in non-government industries.

The Government segment serves customers in the United States federal government and non-U.S. governments. It has built three principal software platforms: Palantir Gotham, Palantir Foundry, and Palantir Apollo.

PLTR’s stock has declined 59.4% in price year-to-date and 72.3% over the past year to close the last trading session at $7.39. It is currently trading 74.7% below its 52-week high of $29.29, which it hit on September 17, 2021.

PLTR beat consensus revenue estimates by 0.3% in the last reported quarter. However, it reported a loss per share of $0.01 versus EPS of $0.04 a year ago and the consensus estimate of $0.03.

PLTR has guided revenue between $474 million and $475 million for the current quarter, below Street's estimate of $505.60 million. In addition, the company lowered its revenue guidance for fiscal 2022 to $1.90-$1.902 billion, below the consensus estimate of $1.98 billion.

The company expects its adjusted operating margin in the third quarter to fall to 11% and decline about 13 percentage points to 18% in fiscal 2022. PLTR is witnessing a slowdown in its contract wins with the U.S. government, one of its biggest clients. PLTR CFO David Glazer admitted that the weak guidance was due to the “lumpiness” of government contracts.

Here’s what could influence PLTR’s performance in the upcoming months:

Disappointing Financials

PLTR’s adjusted income from operations declined 7.6% year-over-year to $107.85 million for the second quarter ended June 30, 2022. Its adjusted EBITDA decreased 7.2% year-over-year to $112.74 million. Also, its adjusted net loss came in at $21.12 million, compared to an adjusted net income of $97.95 million a year ago.

Mixed Analyst Estimates

Analysts expect PLTR’s EPS for fiscal 2022 to decline 58.2% year-over-year to $0.05. Its EPS for fiscal 2023 is expected to increase 203.1% year-over-year to $0.16. Its revenues for fiscal 2022 and 2023 are expected to increase 23.2% and 24.5% year-over-year to $1.90 billion and $2.37 billion, respectively. It failed to surpass Street EPS estimates in three of the trailing four quarters.

Stretched Valuation

In terms of forward non-GAAP P/E, PLTR’s 136.17x is 660% higher than the 17.92x industry average. Likewise, its 5.08x forward non-GAAP PEG is 255.1% higher than the 1.43x industry average. And the stock’s 6.27x forward P/B is 57.4% higher than the 3.98x industry average.

Mixed Profitability

In terms of trailing-12-month gross profit margin, PLTR’s 78.73% is 57.6% higher than the 49.94% industry average. Its trailing-12-month 19.29% levered FCF margin is 142.9% higher than the 7.94% industry average.

However, its trailing-12-month Capex/Sales of 1.83% compares to the industry average of 2.43%. Furthermore, the stock’s 0.55% trailing-12-month asset turnover ratio is 13.6% lower than the industry average of 0.63%.

POWR Ratings Don’t Indicate Enough Upside

PLTR has an overall C rating, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has a D grade for Value, consistent with its stretched valuation.

It has a C grade for Quality, in sync with its mixed profitability.

PLTR is ranked #18 out of 25 stocks in the F-rated Software - SAAS industry. Click here to access PLTR’s ratings for Growth, Momentum, Stability, and Sentiment.

Bottom Line

High-growth stocks like PLTR have corrected significantly since the beginning of the year due to the Fed’s aggressive interest rate hikes. PLTR is trading lower than its 50-day and 200-day moving average of $9.31 and $12.19, indicating a downtrend.

Due to the uncertain macroeconomic environment, the company is witnessing softening of demand from government and international customers, which has led to it lowering its revenue guidance for the current quarter and a full year.

Given its disappointing financials, stretched valuation, and mixed profitability, we think it could be wise to wait for a better entry point in the stock.

How Does Palantir Technologies Inc. (PLTR) Stack Up Against Its Peers?

PLTR has an overall POWR Rating of C, equating to a Neutral rating. Therefore, one might consider looking at its industry peer Informatica Inc. (INFA), which has a B (Buy) rating.

PLTR shares fell $0.05 (-0.68%) in premarket trading Thursday. Year-to-date, PLTR has declined -59.69%, versus a -15.80% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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