Palantir Technologies Inc. (PLTR) in Palo Alto, Calif., develops and deploys software systems for the intelligence community to help in counterterrorism investigations and operations. In October, the National Institutes of Health (NIH) National Center for Advancing Translational Sciences (NCATS) granted PLTR a contract to continue providing a secure cloud-based data enclave to consolidate COVID-19 data for collaborative clinical research.

But PLTR stock has declined 25.2% in price over the past month and 27.1% over the past three months. Closing yesterday's trading session at $19.46, it is currently trading 56.8% below its 52-week high of $45, which it hit on January 27, 2021.

And in September, the U.K. government announced that it was ending a partnership with PLTR following concerns from privacy organizations about lack of transparency. These concerns, along with PLTR's mixed profitability and lofty valuations, could affect its future performance.

Here is what could shape PLTR's performance in the near term:

Questionable Business Operations

On August 30, 2021, Bronstein, Gewirtz & Grossman, LLC, a corporate litigation firm, began examining whether PLTR and several of its executives and directors violated federal securities laws. The examination came in-part in response to an article published on August 25, 2021, in the New York Post headlined "FBI Palantir bug enabled illegal access to private data."

Strategic Collaboration

Last month, PLTR and BigBear.ai, a leading provider of artificial intelligence, machine learning, big data analytics, and cyber solutions, announced a strategic partnership in which the products of both the companies will be combined to extend the operating system for the modern enterprise with data and AI that provide advice and other actionable insights for complex business decisions. PLTR's foundry platform will be integrated with BigBear.ai's Observe, Orient, and Dominate products as part of the integrated product offering/ This should result in powerful machine learning extensions for the PLTR's ecosystem that will provide global data collection, generate actionable insights, and deliver anticipatory intelligence at enterprise scale to address high-growth federal and commercial verticals, such as space, retail, logistics, and energy.

Impressive Growth Prospects

Analysts expect PLTR's revenues and EPS to rise 29.5% and 33.3%, respectively, year-over-year to $1.98 billion and $0.2 in its fiscal year 2022. In addition, PLTR's EPS is expected to rise at a 39.2% CAGR per annum over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in two of the trailing four quarters.

Mixed Profitability

PLTR's gross 77.5% gross profit margin is 57.1% higher than the 49.3% industry average. Also, its 36% Levered FCF margin is 205.1% higher than the 11.8% industry average.

However, PLTR's 0.49% trailing-12-months asset turnover ratio is 23.7% lower than the 0.46% industry average. Also, its ROA, ROC, and net income margin are negative 15.9%, 17.7%, and 35.8%, respectively. Furthermore, its trailing-12-months EBIT margin is negative 39.3% compared to the 9.1% industry average.

Premium Valuations

In terms of forward non-GAAP P/E, the stock is currently trading at 128.07x, which is 430.2% higher than the 24.15x industry average. Also, its 23.42x forward EV/Sales multiple is 481.3% higher than the 4.03x industry average. And PLTR's 24.67x forward Price/Sales is 521.4% higher than the 3.97x industry average.

POWR Ratings Reflect Uncertainty

PLTR has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has an F grade for Value and a C for Quality. The company's higher than industry valuation is in sync with the Value grade. PLTR's mixed profitability is consistent with the Quality grade.

Of the 15 stocks in the F-rated Software – SAAS industry, PLTR is ranked #11.

Beyond what I have stated above, one  can view PLTR ratings for Growth, Stability, Momentum, and Sentiment here.

Click here to check out our Software Industry Report for 2021

Bottom Line

Though PLTR has made significant progress through its collaborative efforts with various organizations, the absence of new government contracts is a cause for concern. In addition, the company is currently trading below its 50-day and 200-day moving averages of $23.38 and $23.71, respectively, reflecting a bearish sentiment. So, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does Palantir Technologies Inc. (PLTR) Stack Up Against its Peers?

While PLTR has an overall C rating, one might want to consider its industry peer, MiX Telematics Ltd. (MIXT), and The Sage Group Plc (SGPYY), having an overall B (Buy) rating.

PLTR shares rose $0.12 (+0.62%) in premarket trading Wednesday. Year-to-date, PLTR has declined -16.86%, versus a 26.64% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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