Palantir Stock Bears the Brunt of a Price Target Cut
Big data contractor Palantir (PLTR) had a big day Tuesday, reporting tremendous growth both in revenues (up 49% year-over-year) and in losses -- up 127% year-over-year. For its fiscal first Read More... The post Palantir Stock Bears the Brunt of a Price Target Cut appeared first on TipRanks Financial Blog.
Big data contractor Palantir () had a big day Tuesday, reporting tremendous growth both in revenues (up 49% year-over-year) and in losses -- up 127% year-over-year. For its fiscal first quarter 2021, Palantir recorded revenue of $341.2 million.
Losses were only $0.07 per diluted share, less than the $0.10 per diluted share reported a year ago, when the company was still private, and about equal to Wall Street estimates. However, those losses were spread out across many more new shares created during the IPO. On a pure "net loss" basis, Palantir lost $123.5 million for the quarter, more than twice what it lost in last year's Q1.
Most investors didn't care one bit. Focusing on Palantir's revenue growth, which exceeded analyst expectations, and on the company's prediction that Q4 revenues will be even stronger -- and again, ahead of analyst estimates -- investors bid up Palantir stock 9% through Tuesday's closing bell.
And yet, not everyone was totally impressed.
In a note out after earnings, RBC Capital's 5-star analyst Matthew Hedberg reiterated his lukewarm "sector perform" rating on Palantir stock, and to emphasize the point, reduced his price target on the shares to just $20. (To watch Hedberg's track record, )
As the analyst explained, Palantir's revenue outperformance was indeed "solid" in Q1, and the company did indeed guide for better-than-expected revenue in Q2 as well. Palantir even performed well on the free cash flow front, generating "adjusted" free cash flow of $151 million in the quarter, and promising to at least maintain that, closing out the year north of $150 million in adjusted free cash flow as well.
Margins are also improving. Palantir's 34% operating profit margin was a good 11 percentage points higher than management had told investors to expect -- and "the company continues to innovate such as with Edge AI," admitted Hedberg. And overall, "Palantir's 1Q was a good start to the year."
Nevertheless, Palantir has the misfortune of belonging to a group of highflying tech stocks -- or more precisely, tech stocks that flew high during the pandemic, but have more recently fallen into disfavor, and to an extent, it's likely that its fate will be tied to theirs. In case you haven't noticed, the tech-heavy Nasdaq is down more than 5% over the past month, and a whole series of highflyers have suffered even worse damage to their stock prices. (See CrowdStrike, down 20% since mid-February, or Zoom Video Communications, down 33%).
"Due to comp group multiple contraction," says Hedberg, it's possible that going forward, investors might not be so willing to pay such high multiples to sales for companies such as Palantir. Thus, even as Palantir the company exceeds estimates and produces higher revenues than predicted, the analyst is ratcheting back his estimated valuation on Palantir the stock -- from 29 times forward revenue predictions, to just 21 times.
Based on that formula, the analyst now believes that, a year from now, Palantir stock might actually be worth no more than what investors are paying for it today: $20 a share.
Overall, PLTR has 9 recent analyst ratings, including 2 "buys," 3 "holds," and 4 "sells," adding up to a consensus view of Hold on the stock. Share are selling for $20.21, and the $21.75 average price target suggests a modest 8% upside. (See PLTR stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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