It was one of the more hyped IPOs in investing circles, but the Wall Street debut of Silicon Valley’s most secretive company Palantir (NYSE:PLTR) was relatively uneventful for the first month or so. If you have been following along with the stock though you may have noticed that over the past few weeks, the stock has surged to the tune of 200%. Volume has been massive with nearly 200 million shares changing hands during the last trading session, which dwarfs its average daily volume of 57 million shares. Something is up with Palantir.
A couple weeks ago, Palantir did report its quarterly earnings and boy did it impress. In the third quarter revenue rose by 52% year-over-year from 2019, and the adjusted operating margin was an impressive 25%. Now, much of the criticism around Palantir was the fact that a majority of its contracts were with the American government. Not that these contracts are not stable, but investors get wary of any company who has a low customer concentration. Well, since becoming a publicly traded company, Palantir has been trying to clean up its image and has increased commercial business by over 35% year-over-year, while at the same time adding to its government business by a factor of 68% year-over-year. It seems like a lot of companies want a piece of Palantir.
In addition to its positive earnings report, Palantir also announced it has locked up some more government contracts recently, including ones with the U.S. Army and NCATS. Yes, the emphasis on the government is a little concerning, but a Biden administration actually has fueled some of this run-up by the stock. If Biden becomes president, investors are anticipating stability in the White House and in the United States in general. Biden also comes with well-known lower budgets for spending and this suits Palantir well as its software actually comes in at a lower price tag than others in the industry. You will notice many of Palantir’s contracts are for tens of millions of dollars, rather than hundreds of millions or even billions. While not as impressive at first glance, the more of these that pile up, the more Palantir’s stock price still seems like a bargain.
So is Palantir going to continue to rise? Maybe. There are definitely those on Wall Street who believe that it has come too far too fast and indeed, stock pull-backs are a part of investing life. At this point, I do not see the stock returning to its $10 levels at any point, so investors who were debating starting a position at a lower price may have missed their opportunity. Palantir has also been in talks with the U.K. government to help use its data analytics software for COVID-19 contact tracing, something nearly every country in the world may need to look at if the pandemic continues into 2021. So if you missed your chance, do not worry, the stock should stabilize at some point where a buying opportunity will present itself once again.
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