Is It Too Late to Buy Palantir? A Deep Dive into the Data and Potential

If you've been following Palantir's journey, you know the stock has surged by an impressive 620% since December 2022—that’s a huge leap in under two years! This kind of growth sparks a common question: Did I miss out? Let’s break down Palantir's story and numbers, analyze its current value, and find out if it’s too late to jump in.

A Rollercoaster Ride Since 2021

First, a little history: if you bought Palantir at its all-time high on January 27, 2021, at $45 per share, you might still be in the red. The stock dropped from $45 down to around $6 before making a substantial recovery. Think of it as similar to Amazon’s dive from $113 to $6 back in 2001. Despite the ups and downs, the company has seen a marked improvement in its fundamentals, making Palantir worth a second look.

Key Fundamentals: Story Meets Numbers

Investing isn’t just about numbers; it’s about the story behind the company. When the story and numbers align, you have a good foundation for a strong investment. Palantir, initially focused on aiding the government’s efforts in counter-terrorism, has since diversified its customer base. This shift is reflected in its impressive customer growth, as seen in these quarterly numbers starting from the beginning of 2022: 277, 304, 337, 367, 391, 421, 453, and finally 497 customers.

Palantir’s revenue diversification strategy aims to reduce reliance on government contracts, making the company less vulnerable to shifts in government policy.

Revenue Growth and the AI Advantage

In its latest quarterly report, Palantir reported 27% year-over-year revenue growth. The U.S. commercial revenue rose by an astounding 55%, and overall customer count surged by 83%. This means Palantir’s customer base is growing quickly, even if at a lower average contract size. But, as the company scales, smaller contracts can still mean a diverse and stable cash flow.

Palantir is also heavily invested in AI, an industry projected to grow from a $638 billion market in 2024 to a whopping $3.7 trillion by 2034—a compound annual growth rate of 19%. If Palantir captures even a portion of this market, it’s on a solid trajectory.

Balancing Government and Commercial Revenue

Let’s break down Palantir’s revenue by segment. Since 2018, commercial revenue has tripled, while government revenue has grown fivefold. Palantir’s current gross margin is 81%—impressive when you consider Microsoft’s margin sits at 69%. This high margin means that for every dollar Palantir earns, $0.81 is left over after covering the costs of services, which can significantly boost profit and free cash flow.

Valuation Metrics: A Cautionary Note

Valuation remains a critical consideration. Palantir’s price-to-sales ratio is over 40, with free cash flow trading at 144 times. For comparison, Nvidia—another tech powerhouse—has similar gross margins but offers a faster growth rate. Despite Palantir's impressive stats, these high valuation multiples can be risky if the company's growth doesn’t meet expectations.

Stock Analyzer Tool Results

Using the Stock Analyzer tool, we can assess Palantir’s potential value under different growth scenarios. The model includes three sets of assumptions based on projected revenue growth, profit margins, and free cash flow:

• Revenue Growth: Low 8%, Medium 16%, High 24%
• Profit Margin: Low 15%, Medium 25%, High 35%
• Free Cash Flow Margin: Low 20%, Medium 30%, High 40%

Based on these assumptions, the intrinsic value ranges are as follows:

• Low Estimate: $3.50 to $6.00
• Middle Estimate: $12.00 to $15.00
• High Estimate: $40.00 to $44.00

I’ve set a personal watchlist target at $15, not necessarily as a buy price but as a signal to do more research if the stock approaches that level.

Final Thoughts: Value vs. Price

In the short term, the stock market is a voting machine, but in the long term, it’s a weighing machine. Palantir’s weight—its intrinsic value—continues to improve, but overpaying now could limit your returns. After its recent surge, Palantir may still have more room to grow, particularly if its role in the AI market expands.

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