Is Palantir’s Guidance Cut An Opportunity To Buy?

Big data and analytics player Palantir Technologies stock (NYSE:PLTR) stock fell by close to 14% in Monday’s trading after the company’s Q2 2022 earnings report. Now, second-quarter earnings were actually pretty strong, with revenue growing by a better than expected 26% year-over-year to $473 million, driven by strong commercial demand, particularly in the U.S, with adjusted profits also coming in ahead of estimates. However, Palantir slashed its revenue outlook for 2022 to about $1.9 billion, implying a growth rate of just about 23%. This comes as a surprise, as the company had recently guided to annual growth of 30% or better each year through 2025. The company also did not reiterate its 30% outlook during the Q2 conference call. Palantir is attributing this to weaker demand from commercial customers, who are facing a tough macro environment which is forcing them to delay investments in technology. Moreover, the company also sees uncertainty in the timing of certain contracts in the government side of the business.

Now the near-term outlook for Palantir remains challenging. The market could continue to pivot away from unprofitable and high-multiple stocks amid high inflation and rising interest rates. That said, we think that the risk-to-reward tradeoff for Palantir looks quite compelling at current levels. Despite the headwinds, Palantir could see an upside to this considering the longer-term geopolitical ramifications of the Russia-Ukraine conflict, and also as artificial intelligence and machine learning play a greater role in business and the broader economy. The company has won deals from a diverse range of commercial customers in recent quarters, with commercial sales growing by about 46% year-over-year over Q2, with U.S. commercial sales rising 120%. Palantir appears confident about its prospects, as it expands its sales and marketing team for the commercial business. For 2022, the company expects to actually increase its headcount by about 25% compared to other tech players who have been slowing down recruiting or laying off workers. Palantir’s valuation also doesn’t look unreasonable, as the stock trades at just under 11x  consensus 2022 revenue, which is a bit below the broader software sector despite the company’s above-average growth.

We estimate Palantir Valuation at about $13 per share, translating into a potential upside of about 30% from the current market price. Check out our analysis of Palantir Revenue for more details on Palantir’s key revenue streams and business model.

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