Palantir brings the wow factor, but should you chase PLTR stock now?

Can Palantir Technologies (NYSE:PLTR) replace Tesla (NASDAQ:TSLA) in this year’s Magnificent Seven? If today’s euphoria lasts, anything is possible, as Palantir Technologies has suddenly become a market darling.

At the same time, Palantir’s CEO issued a dire warning of ongoing risks. But if detecting and preventing cyber risks is Palantir’s business, then its business is clearly pretty good.

Bearish outlook for Palantir stock

Starting with the bad news first, William Blair analyst Louie DiPalma outlined the recent bearish case involving Palantir stock. He observed that the stock “lost momentum in November and December following negative news related to the UK National Health Service (NHS) and US Army Vantage contracts.”

That said, Palantir Technologies’ government contracts may not be as solid as previously assumed. As a result, DiPalma expects “increasing negative contractual developments and slowing U.S. commercial growth” for Palantir “to result in a decline in the stock price over the next 12 months.”

But it may turn out to be a bad call. DiPalma reiterated his Underperform rating on Palantir stock, which is up 26% today alone.

But soaring stock prices may raise other concerns. Value seekers probably won’t consider Palantir Technologies’s GAAP-measured price-to-earnings (P/E) ratio of 247.55 for the trailing twelve months to be a good thing. Meanwhile, the industry’s average P/E ratio is much more reasonable at 28.18.

So it’s understandable if you don’t want to chase PLTR stock after its vertical move. However, I definitely do not recommend shorting stocks. After all, as the old saying goes, markets can stay irrational longer than you can stay solvent.

Palantir’s results provide some support for the bull argument.

On the other hand, Palantir’s fourth-quarter financial results were so positive that some investors may think Palantir’s stock is worth buying at any price. I personally don’t think you should buy any stock at any price, but Palantir Technologies’ financial results have undoubtedly been good.

Among other things, Palantir’s management boasted that the company had recorded five consecutive quarters of GAAP-measured profitability. I’ll admit that’s a fair brag to show that the company isn’t an extremely speculative and unprofitable business.

At least in the U.S., Palantir appears to be on a fast track to success. Remarkably, the company’s U.S. commercial revenue increased 70% year-over-year to $131 million, and the number of U.S. commercial customers increased 55% year-over-year to 221 customers.

Palantir’s global government revenue from its public sector customers increased 11% year over year to $324 million. It’s not jaw-dropping, but I really respect it. But investors shouldn’t simply ignore DiPalma’s warning about the possibility of “more negative contractual developments” mentioned earlier.

Now let’s get to the nitty gritty. Palantir Technologies’ fourth-quarter revenue rose 20% year-over-year to $608 million, beating Wall Street’s $603 million. The company also reported adjusted earnings per share (EPS) of 8 cents. Although that result is in line with analysts’ consensus estimate of 8 cents per share, that’s not a big number when the stock is above $20.

Therefore, value-conscious investors may question whether Palantir’s earnings results justify its 26% share price increase. Five consecutive quarters of profitability as measured on a GAAP basis are all good, but Palantir Technologies doesn’t deserve any medals for that.

For the current quarter, Palantir expects to generate revenue of $612 million to $616 million. This suggests moderate sequential revenue growth, but like all forward guidance, there’s no guarantee that will actually happen as expected.

Palantir’s CEO doesn’t hesitate.

Like Tesla CEO Elon Musk, Palantir CEO Alex Karp clearly has a penchant for making “unusual” statements. For example, Karp characterized Palantir Technologies’ quarterly commercial business as “radical, brilliant, (and) incomprehensibly brilliant.”

Of course, this explanation was not included in Palantir’s quarterly financial press releases. In any case, Karp’s loud and boastful persona may be off-putting to some investors, as Musk sometimes is.

Here’s a sampling of other Karp-isms that will undoubtedly catch people’s attention:

• “Government agencies preparing for war are using Palantir or will soon be using Palantir.”
• “Because if I’m right, both (Palantir skeptics’) businesses and investments will fail.”
• “It certainly feels like we live in a world of increasing chaos and risk.”

Clearly Karp has the utmost confidence in his company. Regarding the quote “increasing chaos and danger,” if this is true today, it has been true for generations.

On balance, Palantir Technologies had a good quarter, and its CEO certainly knows how to grab attention. However, given its value after today’s rally, it would be wise to let PLTR stock cool off before taking a long position.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.