Palantir Technologies stock (NYSE: PLTR) is on fire right now. In the space of just a few weeks, its share price has surged from $11 to $28 – a gain of more than 150%.
As a result of this incredible share price rise, PLTR – which listed on the New York Stock Exchange in late September – is getting a lot of attention from investors. Should I buy this new technology stock? Let’s take a look at the investment case.
Palantir Technologies: what does it do?
Palantir is a technology company founded in 2003. Specialising in big data analytics, it builds software that lets organisations condense all their data onto one platform. This makes it easier for them to make crucial decisions.
Palantir has a total of around 125 customers across a range of industries. Its solutions help financial institutions with risk management, healthcare companies with drug development, and automakers with production efficiency. Here in the UK, its software has been used by the NHS to distribute personal protective equipment (PPE) across the country more efficiently during Covid-19.
What I find particularly interesting however, is that its platforms are used by a number of US government agencies, including the FBI and the CIA. These agencies use PLTR’s products to defend against evolving threats to national security. Selling software to these kinds of government agencies is not an easy task. This suggests to me that Palantir has some very good products.
Looking at Palantir’s financials, growth has been impressive recently. For the third quarter of 2020, revenue was up 52% year-on-year to $289.4m. As a result of this strong performance, the company increased its guidance for full-year revenue to around $1.07bn. That will represent growth of 44% over the prior year.
It’s worth pointing out that the group did incur a loss from operations of $847.8m for Q3. However, when adjusting for $847m million in stock-based compensation, $20.2m in related employer payroll taxes, and $53.7m in expenses related to the listing, income from operations was $73.1m.
What about the valuation? Is this another expensive growth stock? The answer here is yes, it’s expensive.
After Palantir’s recent share price surge, it now sports a market-cap of around $48bn. That puts the stock on a price-to-sales ratio of 45. That’s very high. It adds risk to the investment case. At least one short seller expects the share price to fall substantially.
Insiders are selling
It’s worth noting that since Palantir listed on the NYSE, a number of top-level insiders, including CEO Alexander Karp, co-founder and president Stephen Cohen, co-founder and chairman Peter Thiel, and CFO David Glazer have offloaded stock. Combined, these insiders have sold over $100m worth of PLTR stock. Would they have sold that much if they were convinced the share price is going to rise higher?
Should I buy PLTR?
I think Palantir looks interesting. In today’s data-driven world, it appears well-placed for success. The long-term growth potential appears to be significant.
That said, I do have my concerns over the valuation after the recent share price spike. After rising 150%+ in just a few weeks, there’s downside risk.
Weighing everything up, I’m going to keep Palantir stock on my watchlist for now. At present, I think there are better stocks to buy.
Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.