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Palantir is Up More Than 40% YTD: Will Rally Continue?

Since its IPO, Palantir (PLTR) has been one of the best-performing stocks in the market. YTD, it's already up 40%. Patrick Ryan gives his take on what's next for this high-flying stock.

Palantir Technologies (PLTR) is one of the most secretive publicly traded companies in the history of the stock market yet that does not mean it is undeserving of your attention. As long as you don’t mind investing in a company that might not be completely ethical in every component of its business, you owe it to yourself to consider adding PLTR to your portfolio.

This is not to say PLTR lacks transparency. Rather, some have criticized the company for helping the intelligence community (spies) in questionable ways. However, investors are not moralists. In the end, what matters most is the bottom line.

In short, PLTR is an affordable stock with considerable growth potential. Let's take a look at the company's prospects for the future.

PLTR’s Business

Based in beautiful Denver, Colorado, PLTR keeps its metaphorical cards close to the vest and there is nothing wrong with that unless you are an investor. Perform your due diligence when researching PLTR and you will likely be left with some questions. However, PLTR’s covert style has the potential to be a boon as opposed to a weakness even though most investors demand full transparency at all times.

Though the investing public might not ever learn all the juicy details about PLTR’s operations, the company has made it abundantly clear it makes money by providing software platforms to those who work in the intelligence community. PLTR primarily generates revenue by selling these software platforms to the United States’ intelligence community. However, PLTR also has some commercial clients as well.

Recent PLTR Developments

Investors are clearly excited about PLTR's data analytics offerings as the stock is up more than 200% since its debut. PayPal co-founder Peter Thiel has given the company his vote of confidence. This is an important development as Thiel has a high profile and widespread respect throughout the investing community and beyond.

Information is also gradually trickling out about PLTR's commercial clients. PLTR recently partnered with several companies such as Rio Tinto and PG&E. PG&E will use PLTR’s analytics software to enhance operations in the context of delivering electricity and maintaining California's electric grid. The only question is whether this deal and others are already priced into PLTR's stock price. PLTR is trading more than 50x its annual sales.

PLTR’s Future According to the Analysts

The analysts have mixed opinions on PLTR. The highest analyst price target is $18 while the lowest is $14. These figures are concerning because PLTR trades more than $30 per share. Average out the analyst price targets for PLTR and you will find the average target price is a mere $14. If PLTR reverts to this price level, it will have declined by more than 54%.

PLTR According to the POWR Ratings

PLTR has a POWR Rating grade of D. The stock has D grades in the Value, Stability, and Sentiment components of the POWR Ratings. These grades are concerning, to say the least. However, PLTR has a B grade in the Momentum component. You can find out more about PLTR's performance in the Quality and Growth POWR Ratings components by clicking here.

Of the 13 publicly traded companies in the Software - SAAS space, PLTR is ranked 11th. Investors looking for additional information about the stocks traded in the Software - SAAS sector can learn more about this growing industry by clicking here.

Will the Rally Continue?

Perhaps. However, there will likely be some profit-taking in the weeks and/or months ahead. As noted above, the analysts have established an average price target that is around half of PLTR’s current trading price, meaning the stock is likely to dip into the $20s at some point in the next quarter or two. This prediction is reinforced by the fact that PLTR has an egregiously high forward P/E ratio of 235.26.

This is not to say investors should short PLTR or buy put options on the stock. Rather, investors should take a “wait and see” approach with PLTR. Continue to monitor the company’s news stories. If PLTR has a wave of bullish news or if profit-taking sends the stock down to the low or even mid-$20s, investors should reassess the stock at that point to determine if there is an attractive buying opportunity.

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PLTR shares were trading at $33.79 per share on Friday morning, up to $1.74 (+5.43%). Year-to-date, PLTR has gained 43.48%, versus a 3.72% rise in the benchmark S&P 500 index during the same period.



About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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