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Palantir: Best Stock for the Next Decade (NYSE:PLTR)

Exterior view of Palantir Technologies headquarters campus in Silicon Valley.  - Palo Alto, California, USA - 2019

Michael V

Palantir (NYSE:PLTR) is one of America’s most controversial companies. You either love it, you hate it, or you have no idea what the company does. I love Palantir and I will tell you why. Palantir is a unique, dominant, market-leading company with excellent growth prospects and remarkable long-term profitability potential. Additionally, many investors may view Palantir as a government contractor, but the company’s enormous growth and profitability potential is in the private sector.

Also, Palantir’s technical image looks increasingly bullish and sentiment is expected to improve soon. Palantir announces third-quarter earnings on November 7, and although the company slightly missed the estimates in the second quarter, I believe the third quarter will be much better. As such, we may see Palantir’s share price rise sharply after the earnings, and we should see Palantir’s stock appreciate significantly as the company progresses in the coming years.

Drawing – Ascension Now

PLTR

PLTR (StockCharts.com)

Palantir hit a low of about $6 in May. The stock was oversold at the time and hasn’t been that low since then, although the broader market has dropped significantly. Remarkably, when the stock fell to about $6, it fell nearly 87% from its post-IPO high, and even at today’s price, Palantir is still 82% below its early 2021 levels. Now we see the trend heading towards the evening and while the Palantir has been sideways in the last six months, the broader market is making new lows. This difference is very restrictive, meaning that the lowest level was most likely achieved in May. Also, we are seeing significant developments in technical indicators such as CCI and full stochastic, indicating that momentum and sentiment are improving. The overall technical picture shows that the worst is behind Palantir and the stock could rise sharply soon.

Last Quarter – Better Than It Looks

Palantir missed the consensus EPS estimate by 4 cents. In my last Palantir article, I wrote that investors should focus more on long-term prospects than “counting pennies.” Palantir is a hyper-growth company with remarkable long-term profitability potential. Does it matter if Palantir now earns 3 cents per share or loses 1 cent per share? I think there are more important factors to consider.

For example: Palantir’s Q2 Highlights

2nd quarter highlights

Q2 summary (Investors.palantir.com)

Annual revenue increased 26%. In addition, US revenue increased 45% year-over-year. I want to emphasize a very important point here. Some market participants may believe that Palantir’s potential is primarily based on government contracts. However, I see Palantir very differently. While Palantir is a very good friend of the government and gets very good contracts, the company’s real potential is in the private sector.

Commercial revenues increased by 46% compared to the previous year. Remarkably, US business revenue increased 120% year over year. Additionally, US government revenue growth remained strong, coming in at 27% year-on-year. Perhaps the most surprising statistic is that Palantir’s US business customers grew 250% year over year, from 34 customers in the second quarter of 2021 to 119 customers in the second quarter of 2022, a mind-blowing 250% increase. This dynamic shows that Palantir’s commercial business is growing very quickly. Also, Palantir has yet to show revenues and earnings related to the fast-growing commercial segment of its business. Palantir’s business growth should therefore continue and the company’s future revenues and profits may well exceed most analysts’ forecasts.

Outlook for the Next Quarter

EPS estimates

EPS estimates (SeekingAlpha.com)

Most analysts are looking for revenue of about 2 cents in EPS and about $475 million for the final quarter. But Palantir could probably beat these estimates. Many analysts are extremely pessimistic about Palantir and their expectations and consensus numbers may be low at this point. I believe Palantir can generate 3 cents per share and roughly $480 million in revenue for the third quarter. While a one-cent hit isn’t much to get excited about, it should show that Palantir will become more profitable sooner than expected. Also, even a small hit can significantly raise Palantir’s badly beaten stock from current levels.

Palantir’s Enormous Long-Term Potential

Income Estimates

Income estimates

Revenue estimates (SeekingAlpha.com)

Consensus estimates imply that Palantir’s revenues will rise to about $2.4 billion next year and roughly $3 billion in 2024. However, revenue estimates may be low here, and I expect Palantir to generate close to $2.5 billion and roughly $3.3 billion next year. Due to Palantir’s remarkably long growth track, the company could possibly achieve 25-30% annual revenue growth through 2030. Given Palantir’s market cap is just $16 billion, it’s trading at less than five times its 2024 sales forecast. Pretty cheap for a hyper-growing company.

EPS Estimates

EPS estimates

EPS estimates (SeekingAlpha.com)

We see Palantir’s consensus EPS estimates rise from just 5 cents this year to 16 cents next year and 25 cents in 2024. I also believe current estimates are low and we may see EPS closer to 25 cents next year. After 2023, possibly until 2030, we could see sustained growth of 30-50% HV EPS over several years.

Palantir’s financial situation for the coming years might look like this:

Year 2022 2023 2024 2025 2026 2027 2028 2029 2030
Income B’s $1.9 2.5 dollars 3.3 dollars 4.3 dollars $5.6 $7.3 9.3 dollars $11.2 $14.7
Income increase 24% 31% 32% 31% 30% 29% 28% %27 25%
EPS $0.05 $0.25 $0.38 $0.56 $0.84 $1.26 $1.83 $2.66 $3.73
Forward F/C 32 35 37 40 40 40 38 37 35
stock price 8 dollars 13 dollars $21 $34 50 Dollars $75 101 dollars $138 $150

Source: The Financial Prophet

While my forecasts seem a little aggressive, my near-term forecasts are in line with those of top analysts. Also, Palantir has commanded a relatively high P/E ratio in the past, and a forward P/E increase of around 40 doesn’t seem unreasonable given the company’s unique dynamics. We must also consider that Palantir’s commercial side of the business is key to Palantir’s long-term growth, profitability and success. Given the recent growth statistics, the sticky nature of Palantir’s superior products and services, the company should continue to rapidly expand its business operations and its stocks should appreciate significantly in the coming years.

Risks for Palantir

Despite my upside view for Palantir, market participants should consider the various potential risks associated with this investment. While the growth story is strong in Palantir, shares aren’t cheap by traditional benchmarks. Also, the company’s earnings are minimal and may not increase as much as I had anticipated. Also, if the company’s growth chart is less bullish, the stock could go in the wrong direction. For example, if Palantir loses its credibility in the eyes of the government or suffers a data breach, the stock could suffer a significant drop. Please consider these and other risks carefully before investing in Palantir.

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