Editor’s Note: This article was updated on May 17, 2021, to remove a ticker erroneously associated with SAS.
Investors in software and data analytics group Palantir Technologies (NYSE:PLTR) stock have not had a good 2021 so far. Since the start of the year, PLTR stock is down about 15%. Its current market capitalization stands at $38 billion.
The company, founded in 2013, builds and deploys software platforms to businesses and governments worldwide, as well as U.S. federal agencies so that they can collect and analyze data to make better decisions. It has three main products: Gotham, Foundry, and Apollo. It operates a narrow-moat, as Morningstar analyst Mark Cash pointed out in his latest piece.
Following the direct public offering (DPO) in September 2020, PLTR shares more than quadrupled and hit $45 by late January. But then profit-taking kicked in. On May 11, following the release of first-quarter results, the stock went below $17. Now, it is hovering around $20.
What’s next for PLTR stock? If you are a long-term investor looking to add a high-growth name to your portfolio, you could consider buying the dips. Here’s why.
How PLTR Stock Q1 Results Came
According to research from SAS, “Big data analytics helps organizations harness their data and use it to identify new opportunities. That, in turn, leads to smarter business moves, more efficient operations, higher profits and happier customers.”
Investors expect software and data platforms like Palantir to capitalize on the growth of big data analytics. Its initial customers were mostly governments, starting with various U.S. federal agencies. However, 2020 also saw commercial contracts with metals miner Rio Tinto (NYSE:RIO), and utility PG&E (NYSE:PCG). It also partnered with Amazon’s (NASDAQ:AMZN) AWS unit.
The group’s Q1 results were robust. Total revenue jumped to $341 million, up 49% year-over-year (YoY). Its U.S. commercial revenue grew 72% YoY, and the U.S. government revenue grew 83% YoY.
The net loss was $123.5 million. Adjusted diluted EPS was 4 cents. A year ago, it had been a loss per share of 1 cent. Adjusted free cash flow was $151 million, increasing $441 million YoY.
CFO Dave Glazer told participants on the earnings call that, “With over $2.3 billion in cash on the balance sheet and strong free cash flow in Q1, we paid down our outstanding debt in early April… For our Q2 revenue guidance, we expect year-over-year revenue growth of 43% or $360 million.”
For the 12 months that ended March 31, 2021, the company saw a 29% YoY growth in revenue per customer. The Street was pleased to hear that management believes it can grow 30% per year, in the coming next several years.
For a company co-founded by Peter Thiel, the decision to become involved in financial technology (fintech) was to be expected. He was one of the names who set up PayPal (NASDAQ:PYPL) and an early investor in Facebook (NASDAQ:FB).
Ona final note, we should note that despite the recent decline in price, PLTR stock is not cheap by traditional valuation measures. It trades for about 130x forward price-to-earnings (P/E) and 16x current price-to-sales (P/S). Therefore, the shares are likely to continue to be volatile in the short-term.
The Bottom Line on PLTR Stock
Big data is becoming increasingly more important for governments and commercial enterprises. Palantir’s recent results showed management has substantial long-term visibility. Although I’d not want to bottom-pick tech shares amid the continuing volatility, I find PLTR stock to be appropriate for long-term growth portfolios.
Finally, for investors who are interested in PLTR stock but are not ready to commit full capital into the shares, an exchange-traded fund (ETF) that holds Palantir shares could also be appropriate.
Examples include: the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the First Trust US Equity Opportunities ETF (NYSEARCA:FPX) and the FlexShares Morningstar US Market Factors Tilt Index Fund (BATS:TILT).
On the date of publication, Tezcan Gecgil is long PLTR stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.