2024-02-16 11:49:53 ET
Summary
- My latest 'Sell' view on Palantir was premature; Q4 FY23 results have disproved my previous thesis on the stock. But, for a new host of reasons, I retain a 'Sell'.
- I recognize Palantir's exceptionally strong operating momentum on both revenues and margin growth, driven by bootcamps with commercial enterprises.
- However, an analysis of management's guidance vs consensus estimates suggests that a lot of the optimism is already 'priced in'
- Valuations are near their historical peak levels, leaving minimal margin of safety.
- Technical analysis also makes the case for a bearish view on Palantir vs the S&P500; however, I am flexible on this view and may change my mind if there is any technical sign of view invalidation.
Performance Assessment
In my last coverage of Palantir ( PLTR ), I had initially rated the stock a 'Neutral/Hold'. On 25 January 2024 in a pinned comment, I revised my rating to a 'Sell' before earnings as I had doubts on the quality of backlog growth as measured by remaining performance obligations ((RPO)). This view has not played out as Q4 FY23 results went the exact opposite of what I was expecting. As a result, the stock has surged +48.88% since my 'Sell' view, compared to the S&P500's ( SPY ) ( SPX ) +2.26% over the same period, implying a negative alpha of 46.62%.
Thesis
I believe my 'Sell' rating update was too early. And although the market proved my thesis wrong, I am retaining my 'Sell' view as I believe the operating momentum - as strong as it may be - is ticking below the lofty expectations demanded of the stock given current valuations. Here's how I'm viewing the key drivers of Palantir:
- Deal flow validation of AIP and bootcamps is compelling
- Palantir is de-risking revenues and steadily upgrading margins
- Management's guidance is falling short of expectations
- Valuations are near historical peak levels
Read the full article on Seeking Alpha
For further details see:
Palantir: Strong Momentum But Likely Still Below Market's Expectations