Wall Street expects Palantir to post strong returns for investors in the coming years, but is the software company a good investment?
Over the last few years, businesses have begun to realize the importance of data and understand how it can change the way companies work. If we consider the growing demand for data in the U.S., and indeed the world, Palantir (NYSE: PLTR) looks like a great long-term investment for investors wanting a slice of the highly profitable big data analytics pie.
While Palantir does have competitors in its industry, the company remains a formidable force in its sector, evidenced by it winning government client after government client.
Palantir stock has been on a bit of a rollercoaster lately. Up over 12% over the last month, the stock has still gained almost 169% since its market debut last September.
Is Palantir a great long-term investment?
1. Palantir's growing market
Palantir is making a name for itself in the software industry by signing some top-class deals with Silicon Valley's finest, including recent contracts with IBM and Amazon's (NASDAQ: AMZN) AWS. In early Junel last year, Palantir also announced that it was expanding its work with Japanese-based Fujitsu with a one-year, $8 million contract between the two. Fujitsu will become the first distributor of Palantir's Foundry platform modules in Japan.
However, these contracts make up only a small portion of the market share potential, meaning there is still plenty of room for growth for Palantir.
2. Palantir's impressive financials
The Denver-based company's fast growth was also proven in its most recent earnings report.
In 2021, Palantir's total revenue grew 41% to $1.54 billion year-over-year (YoY). What's more:
- Commercial revenue grew 34% year-over year to $645 million
- US commercial revenue grew 102% year-over-year
- Government revenue grew 47% to $897 million
- Commercial customer count tripled to 147 customers year-over-year
- US commercial customer count increased 4.7x to 80 customers year-over-year
- Total net dollar retention of 131%
- US commercial net dollar retention of 150%
- Government net dollar retention of 146%
- Cash from operations of $334 million, representing a 22% margin
- Adjusted free cash flow of $424 million, representing a 28% margin
3. Winning government clients
Palantir is known as one of the top providers of data analytics in the industry to some big government agencies. It has remained loyal to the U.S. government and this has helped it win multiple deals. For Q2, Palantir stated that revenue from the U.S. government had grown 90% YoY.
Over the past few months, Palantir has signed the following government contracts including:
- U.S. Special Operations Command, worth $111 million
- $90 million from a deal with the National Nuclear Safety Administration
- $32.5 million from the U.S. Space Force Command and
- A deal with the Federal Aviation Administration, worth $18.4 million.
Experts estimate that demand from government agencies is only going to increase in the coming years, which is great news for Palantir. The technology company is already helping the U.K. government with the Brexit border, working with its public healthcare sector, the NHS. During the pandemic, Palantir was also contracted by the U.S. Department of Health and the British National Health Service to help control the flow of coronavirus-related data.
Many have criticized Palantir for going after government contracts, but smart investors also realize that these types of clients give the company stable income that they can rely on.
Should I invest in Palantir?
With a market cap over $48 billion, the stock may look a little overvalued at the moment considering that Palantir is yet to report a profit. However, many shareholders believe that it's Palantir's massive growth opportunities, discussed above, that justify the company's high valuation.
Given the company's growing dominance in both the commercial and government sectors, the stock is becoming more of a solid investment for long-term investors.
