Palantir is a U.S. defense asset and a long-term buy (NYSE: PLTR ) | Private Equity Weekly

Palantir Technologies (NYSE:PLTR) is well positioned for long-term success and is also critical to the U.S. defense mission, which both adds security to near-term recurring revenue stability but also creates some potential vulnerabilities. situations of greater war and defense needs. I view this investment as a strong allocation into niche, highly advanced data work with a strong moat due to its difficulty in breaking out of its target market. But valuations reflect their quality, so over the long term these stocks perform well, but short-term price returns cannot be considered without taking on undue risk.

Operational analysis

I haven’t covered Palantir before, and I’ve been on the sidelines for a long time because I saw many analysts touting the stock’s long-term prospects.Prepare In this article, I took an in-depth look at Palantir’s product and decided to present it as a suitable analysis to those investors who may be unfamiliar with the Palantir investment landscape. For those who already know about Palantir, I’ve added unique commentary and insights into the company’s key operating strengths, which heavily influence my rating on the stock.

Palantir is primarily known for its two main software platforms, Palantir Gotham and Palantir Foundry:

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Based on my research, I believe Palantir’s involvement in government operations provides it with a crucial sense of stability compared to its potentially more lucrative but less fixed commercial contracts. It’s worth noting that both government and commercial licensing contracts for Palantir’s software provide recurring revenue, which I believe is always a big plus for investors predicting future growth.

Palantir’s staff is primarily made up of data scientists and engineers, so I think investors should be prepared that its operations won’t provide an “Nvidia (NVDA) moment” as some analysts have suggested. Based on my analysis, it seems more reasonable to predict that Palantir will solidify its market position as a provider of highly advanced but niche software for complex data tasks. This won’t be the next Amazon (AMZN) stock by any means, and I think that’s obvious and expected among Palantir management. Its target market is not large-scale at all.

Now, this doesn’t mean Palantir isn’t worth investing in. Quite the opposite. I believe it is well-positioned for long-term success because I believe it will continue to develop a wide moat in sophisticated, sophisticated, and “best-in-class” military-grade data software. Just because this doesn’t have mass market appeal, and the associated growth is likely to be lower in the long term, doesn’t mean the company can’t earn very strong price returns until then, and my prediction is once the market Relatively fully saturated, it could become a reliable dividend company.

Peer analysis

Based on my research, I believe these can be considered Palantir’s most important competitors at the time of writing:

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Palantir appears to have some competitive advantages because it provides data services for higher-risk, higher-security areas at a level of complexity more ideal for the intelligence and defense world. I don’t think the other three major competitors listed in the table above can do this, and I think investors should consider how strong and unique the moat Palantir has developed here is. In my opinion, I can’t think of any company that is more directly focused on data efforts in the high-profile security-driven space than Palantir. In my opinion, this is an excellent but difficult target market to enter, so once trust and reputation are destroyed, it will be difficult for competitors to compete effectively.

Now consider the financial metrics (minus Trifacta) for four of my peers in the table below, since Clearlake Capital is a private company:

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It’s clear to me from the table above that Palantir offers very compelling growth prospects, far ahead of IBM and competitive with Salesforce. I believe Palantir is a very compelling long-term investment right now, and based on analyst estimates, I have reason to believe the stock should deliver solid alpha over the next decade.

Coupled with a stronger balance sheet than Salesforce, I don’t see any immediate damage to the current financial position. It seems only a matter of time before the company stabilizes profitability in the long term. By doing this, I think it will attract a whole new set of commercial and retail investors, and the stock could start to rebound above its IPO price. My only serious concern right now is that the company appears to be relatively unfavorably valued even by price/sales standards.

Valuation

Louis Naveller recently noted that Brian White of Moness, Crespi, Hardt & Co. downgraded Palantir stock to hold from neutral due to its higher price-to-sales ratio. Naveller is very astute in his analysis and points out that while Palantir is clearly “expensive,” the company’s growth will likely push the price higher.

I agree with the general thesis that Palantir stock will likely be able to maintain its premium valuation over time, and I believe its P/E ratio will gradually shrink as the company’s revenue continues to grow and its profits begin to show in the future Realized exponential growth for the first time in 10 years.

Currently, the forward price-to-sales ratio is 19, which while undoubtedly implies a premium, may be worth the short- to medium-term volatility caused by any short-term forecast misses both quarterly and across the board. year results.

My personal view is that Palantir investors are in some degree of turmoil, and current speculative valuations could lead to price volatility. But, nevertheless, the foundation for a long-lasting and successful company in advanced data software is here, and the company has proven the effectiveness of its operations. As a long-term investor, I see no reason not to consider Palantir a buy, even if the current valuation is troubling. I think investors have to be cautious and this cannot be a short-term move. The company’s quality and market-leading prices insist it is an operating asset, not a price asset.

risk

Palantir operates at the intersection of government and commercial projects, so it has one foot in the military-industrial complex and the other in the corporate-industrial complex. So there could be some conflicts of interest here that could derail one or more plans or deals, and I also think that because of Palantir’s heavy involvement in the U.S. defense business, it may not be able to expand in certain geographic areas (i.e., Russia and China). . This obviously ties into my previous point that Palantir isn’t as scalable as some investors think. This is a highly specialized niche company that provides advanced but highly valuable data analytics to elite, high-profile clients.

Additionally, Palantir shareholders could be negatively impacted if tensions between global powers escalate. I’m watching this closely, and I personally hope that Trump’s election will help ease some of the current tensions between Russia, China, and the United States. Assume Biden takes office in 2024 and is reelected. In this case, I believe that it is possible for a world war to come to fruition based on his government’s support for Ukraine’s initiative to join NATO. That would be terrible for broader U.S.-Russian cooperation, and China might side with Russia.

This is an extremely fragile time in global politics, and one must be aware that Palantir may have financial claims in service to the country that it would not otherwise consider taking on. In other words, national security interests may simply affect shareholder returns. For my part, as a non-U.S. citizen, I am praying for Trump’s return, and I urge others in the United States and abroad to support his election.

in conclusion

I believe Palantir is an outstanding company with a very strong moat and a niche market for advanced data software suitable for elite enterprise use and defense missions. It has to achieve a very careful intersection between the national interest and shareholder returns, so I think investors should be prepared for a stock that does well but isn’t going to be the next Amazon or Meta Platform (META) stock. However, for investors who want to participate in high-quality and extremely important data work, I think Palantir is a very successful long-term investment.