Recent IPO Palantir Technologies (PLTR) is close to a new buy point as the software maker's Q2 sales beat Wall Street targets.
The Denver-based software provider aims to grow its commercial customer base by expanding into the health care, energy and manufacturing sectors. Government agencies, the chief growth driver, use Palantir software for intelligence gathering, counterterrorism and military purposes.
On Aug. 12, following Palantir's Q2 earnings results, fund manager Cathie Wood's ARK Invest bought 5.6 million shares across its six actively managed ETFs, according to Barron's. That brings ARK Innovation (ARKK) and ARK Next Generation Internet's (ARKW) Palantir weightings to more than 2% each.
Palantir's technology allows USSOCOM to collaborate real time with allies. That gives commanders awareness of global situations, brings AI to the battlefield, and improves the ability to respond to near-peer threats.
Read on to find out what the fundamentals and technical analysis say about buying PLTR stock now.
Palantir was founded in the early 2000s by PayPal (PYPL) co-founder Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp. The company name is derived from the palantiri, crystal ball-like "seeing stones" from The Lord of the Rings.
The Denver-based company offers three platforms: Palantir Gotham, used primarily by government agencies; Palantir Metropolis for banks, financial services firms and hedge funds; and Palantir Foundry, used by corporate clients.
To speed up corporate adoption of artificial intelligence software, Palantir and IBM (IBM) announced a global partnership earlier this year. Under the deal, Palantir made its Foundry software available to IBM's cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.
PLTR Stock Fundamental Analysis
IBD Stock Checkup assigns Palantir a 66 Composite Rating. This proprietary rating gives investors a quick way to gauge a stock's key growth traits. Palantir's score puts it in the top half of the 108-stock enterprise software group, which includes DocuSign (DOCU), Salesforce.com (CRM), Shopify (SHOP) and Zoom Video (ZM).
A 65 Earnings Per Share Rating, part of the overall composite score, also lags. That could improve, however, as Palantir is expected to turn its first annual profit this year. Analysts expect EPS of 16 cents for 2020, followed by a 31% jump to 21 cents next year.
On Aug. 12, the company reported Q2 adjusted earnings that met expectations, while revenue growth topped views. Palantir earned 4 cents a share on revenue of $375.6 million vs. analyst forecasts for 4 cents and $360.3 million in sales.
Palantir's government revenue rose 66% from the year-earlier period to $232 million, beating estimates for $219.3 million. Commercial revenue rose 28% to $144 million, above forecasts for $140.8 million. Palantir said it had 169 commercial customers as of June 30, topping views for 158. It added 20 new customers in the second quarter.
"Bookings were similarly strong, with the company revealing a new financial metric (total contract value) of $925 million, up 175% year over year in the quarter," Wolfe Research analyst Alex Zukin said in a note to clients.
For the current quarter ending in September, Palantir forecast revenue of $385 million. Analysts polled by FactSet had projected third-quarter revenue of $379.4 million.
PLTR Stock Technical Analysis
PLTR stock is more than 40% off its Jan. 27 peak. But it's still up more than 200% from its Sept. 30 debut, when Palantir launched a direct listing priced at 7.25 a share.
In a traditional IPO, companies create new shares, underwrite them and sell them to the public. A direct listing creates no new shares and sells only existing, outstanding shares with no underwriters involved.
Palantir stock quickly formed a four-week IPO base, which it cleared in late November. After a 191% run from the 11.52 buy point, the stock built an eight-week consolidation. A subsequent breakout yielded a 34% gain from the 33.60 entry, before shares began pulling back.
Palantir stock's 89 Relative Strength Rating means it's in the top 11% of all stocks. The relative strength line, which compares a stock's performance to the S&P 500, has recently turned slightly higher. A move into new high ground at or ahead of a potential breakout would be a bullish sign.
A C Accumulation/Distribution Rating points to roughly even net buying vs. selling by mutual funds.
As of June 30, 472 mutual funds owned Palantir stock, up from 193 in March. Those earning an A+ from IBD include Vanguard Growth Index Investor (VIGRX), Rydex Technology Fund (RYTIX) and American Beacon ARK Transformational Innovation Fund (ADNPX).
Recent IPO Palantir continues to post double-digit sales growth and is expected to turn its first annual profit this year. The software maker aims to expand its commercial business, since government agencies are the chief growth driver. It recently began accepting Bitcoin as payment and may invest in the cryptocurrency.
Palantir stock is more than 40% off its high but has regained its 50-day moving average, according to IBD MarketSmith chart analysis. It had been stuck below the line since mid-February. Seven up weeks helped it start the right side of a deep base, before a pullback earlier this month.
The stock was working on a new consolidation with a 27.60 buy point. It has since reclaimed its 50-day line and added a handle, for a slightly lower cup-with-handle buy point of 26.04. On Monday, PLTR stock climbed past the entry before easing back below.
PLTR was in buy range during Monday's session. Watch to see if it rises back above the entry this week. If it tries to break out again, you'd want to see volume at least 40% higher than normal. High-volume breakouts tend to be more successful.
Keep in mind that a 66 Composite Rating and 65 EPS Rating are lower than you'd like to see with most growth stocks.
Also keep an eye on the overall market. The market is in a confirmed uptrend, which means it's an opportune time to buy leading stocks at proper entries. Read The Big Picture for detailed daily market analysis.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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