Recent IPO Palantir Technologies (PLTR) is consolidating after the software maker achieved its first profitable quarter and announced new contracts.
The Denver-based software provider aims to grow its commercial customer base by expanding into the health care, energy and manufacturing sectors. Government agencies, the chief growth driver, use Palantir software for intelligence gathering, counterterrorism and military purposes.
On June 18, Palantir announced a new contract with the Federal Aviation Administration to provide data analytics tools for aircraft certification. The contract is valued at up to $18.4 million.
On May 28, Palantir said it was awarded a contract from the United States Special Operations Command (USSOCOM) valued at $111 million. Palantir will continue work with the agency’s enterprise data management and AI-enabled mission command platform.
Palantir’s technology allows USSOCOM to collaborate real time with allies. That gives commanders awareness of global situations, brings AI to the battlefield, and improves the ability to respond to near-peer threats.
Read on to find out what the fundamentals and technical analysis say about buying PLTR stock now.
Palantir was founded in the early 2000s by PayPal (PYPL) co-founder Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp. The company name is derived from the palantiri, crystal ball-like “seeing stones” from The Lord of the Rings.
The Denver-based company offers three platforms: Palantir Gotham, used primarily by government agencies; Palantir Metropolis for banks, financial services firms and hedge funds; and Palantir Foundry, used by corporate clients.
To speed up corporate adoption of artificial intelligence software, Palantir and IBM (IBM) announced a global partnership earlier this year. Under the deal, Palantir made its Foundry software available to IBM’s cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.
PLTR Stock Fundamental Analysis
IBD Stock Checkup assigns Palantir a 60 Composite Rating. This proprietary rating gives investors a quick way to gauge a stock’s key growth traits. Palantir’s score puts it near the middle of the 102-stock enterprise software group, which includes DocuSign (DOCU), Salesforce.com (CRM), Shopify (SHOP) and Zoom Video (ZM).
A 56 Earnings Per Share Rating, part of the overall composite score, also lags. That could improve, however, as Palantir is expected to turn its first annual profit this year. Analysts expect EPS of 14 cents for 2020, followed by a 43% jump to 20 cents next year.
On May 11, the company notched its first quarterly profit of 4 cents per adjusted share on revenue of $341.2 million. Earnings met, while sales rose 49% year over year and topped views for $332.2 million.
Palantir’s software is used by government agencies in a wide range of applications — and the company sees plenty of room to expand further into the commercial sector.
“Where the government response to the pandemic has been efficacious, we are seeing a commercial tailwind,” Chief Operating Officer Shyam Sankar said on the earnings call. “In the U.S., in particular, we continue to generate exceptional results, where revenue grew 83% in the U.S. government and 72% in commercial. And we have a lot of headroom for growth in these markets.”
Palantir is slated to report Q2 results Aug. 10.
PLTR Stock Technical Analysis
PLTR stock is more than 40% off its Jan. 27 peak. But it’s still up more than 215% from its Sept. 30 debut, when Palantir launched a direct listing priced at 7.25 a share.
In a traditional IPO, companies create new shares, underwrite them and sell them to the public. A direct listing creates no new shares and sells only existing, outstanding shares with no underwriters involved.
Palantir stock quickly formed a four-week IPO base, which it cleared in late November. After a 191% run from the 11.52 buy point, the stock built an eight-week consolidation. A subsequent breakout yielded a 34% gain from the 33.60 entry, before shares began pulling back.
Palantir stock’s 91 Relative Strength Rating means it’s in the top 9% of all stocks. The relative strength line, which compares a stock’s performance to the S&P 500, is off its Jan. 27 peak and has recently turned slightly lower. A move into new high ground at or ahead of a potential breakout would be a bullish sign.
A B- Accumulation/Distribution Rating points to higher recent net buying vs. selling by mutual funds.
As of June 30, 318 mutual funds owned Palantir stock, up from 191 in March. Those earning an A+ from IBD include Vanguard Growth Index Investor (VIGRX), Eaton Vance Focused Growth Opportunities Fund (EAFGX) and American Beacon ARK Transformational Innovation Fund (ADNPX).
Recent IPO Palantir continues to post double-digit sales growth and is expected to turn its first annual profit this year. The software maker aims to expand its commercial business, since government agencies are the chief growth driver. It recently began accepting Bitcoin as payment and may invest in the cryptocurrency.
Palantir stock is more than 40% off its high and is currently testing its 50-day moving average, according to MarketSmith chart analysis. It had been stuck below the line since mid-February. Seven up weeks have helped it start the right side of a deep base, before pulling back last week. PLTR is not a buy right now.
But with Palantir scoring its first profitable quarter and the stock turning up, it’s a promising watchlist candidate. Also keep an eye on the overall market. The market is in a confirmed uptrend, which means it’s an opportune time to buy leading stocks at proper entries. Read The Big Picture for detailed daily market analysis.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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