Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations. The company’s software portfolio includes Palantir Gotham, Palantir Foundry, and Apollo.

On July 28, 2022, PLTR announced that it would expand its work with the U.S. Army Research Laboratory to implement data and artificial intelligence /machine learning capabilities for users across the combatant commands.

In addition, on June 28, 2022, Guidehouse, a global provider of consulting services, announced its partnership with PLTR. However, it might take some time before these ventures can realize substantial gains.

Over the past month, PLTR has gained 20.8% to close the last trading session at $11.20. However, it has lost 38.5% year-to-date and 49.6% over the past year. It is currently trading 73.9% above its 52-week low of $6.44, which it hit on May 12, 2022.

Here is what could shape PLTR’s performance in the near term:

Mixed Financials

For the first quarter ended March 31, 2022, PLTR’s revenue came in at $446.36 million, up 30.8% year-over-year. However, its cash, cash equivalents, and restricted cash came in at $2.33 billion, down 4.7% year-over-year.

Moreover, its adjusted operating margin came in at 26%, compared to 34% in the year-ago period. Also, its adjusted free cash flow came in at $29.79 million, down 80.3% year-over-year. In addition, its adjusted EPS came in at $0.02, down 50% year-over-year.

Stretched Valuations

In terms of its forward EV/S, PLTR’s 10.45x is 253.2% higher than the industry average of 2.96x. Its forward EV/EBITDA of 37.81x is 186% higher than the industry average of 13.22x. Furthermore, its forward P/S of 11.58x is 288.7% higher than the industry average of 2.98x.

Poor Profit Margins

PLTR’s trailing-12-month negative EBITDA margin of 19.46% is significantly lower than the industry average of 12.82%. Furthermore, its trailing-12-month negative net income margin of 30.25% is also lower than the industry average of 4.37%.

Moreover, PLTR’s trailing-12-months ROCE, ROTC, and ROTA of negative 23.89%, 8.60%, and 15.01%, compare with the industry averages of 6.88%, 4.16%, and 2.65%, respectively.

POWR Ratings Reflect Bleak Prospects

PLTR has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PLTR has a Value grade of F, consistent with its higher-than-industry valuation multiples. The stock has a D grade for Stability, in sync with its 24-month beta of 1.99.

In the 24-stock Software – SAAS industry, PLTR is ranked #19. The industry is rated F.

Click here for the additional POWR Ratings for PLTR (Growth, Momentum, Sentiment, and Quality).

View all the top stocks in the Software – SAAS industry here.

Bottom Line

PLTR’s recent business expansionary policies have helped the company to register positive returns over the past month. However, it has lost almost 50% over the past year, and its poor profitability looks concerning. Thus, I think PLTR is best avoided now.

How Does Palantir Technologies Inc. (PLTR) Stack Up Against its Peers?

While PLTR has an overall POWR Rating of D, one might consider looking at its industry peers, Informatica Inc. (INFA), The Sage Group plc (SGPYY), and MiX Telematics Limited (MIXT), which have an overall B (Buy) rating.

PLTR shares were trading at $11.25 per share on Thursday morning, up $0.05 (+0.45%). Year-to-date, PLTR has declined -38.22%, versus a -12.11% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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