Palantir Stock Down 7% Today – Time to Buy PLTR Today?

Palantir stock is down nearly 7% in pre-market stock trading action this morning following the release of the company’s financial results covering the fourth quarter of the 2021 fiscal year with earnings landing below Wall Street’s estimates for the period.

Revenues of the Denver-based data analytics company ended the quarter at $433 million resulting in a 34% jump compared to the same period a year ago while exceeding analysts’ consensus estimate of $418 million for the quarter.

According to the company, commercial revenue grew 47% compared to a year ago aided by a remarkable 127% jump in US commercial revenues. Meanwhile, government revenue advanced 26% on a year-on-year basis. The company added a total of 34 net new customers during the quarter.

GAAP losses from operations ended at $58.9 million compared to $156.6 million the company shed the previous year while adjusted operating profits ended at $124 million compared to $104.1 million reported a year ago after adding back stock-based compensation and other non-cash items. Palantir’s adjusted operating margin slipped 300 basis points at 29%.

Finally, adjusted earnings per share slipped to $0.02, down one cent from the figure reported on Q4 2020. The number was also 2 cents below the market’s consensus estimate for the period.

A decline in the firm’s adjusted operating and EBITDA margins might be the reason why Palantir stock is dropping today.

In regards to this, the management stated: “As we have done throughout 2021, we are investing heavily in our go-to-market efforts, including building our direct sales team as well as growing our marketing spend”.

They added: “Fourth quarter 2021 marketing expenses grew 65% quarter-over-quarter, and we expect to meaningfully grow our marketing efforts in 2022 to continue supporting our growing sales team and other distribution channels”.

For the first quarter of 2022, Palantir guided for revenues of $443 million and adjusted operating margins of 23%. This estimate came slightly above Wall Street’s forecast for the period.

Meanwhile, for the entire 2022 fiscal year, the company expects to see its adjusted operating margins decline by 400 basis points at 27% compared to 2021’s figure. Revenues for the year are expected to grow at a rate of 30% or faster.

What could be expected from this tech stock following the release of this earnings report? In this article, I’ll be assessing the price action and fundamentals of Palantir stock to outline plausible scenarios for the future.

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Palantir Stock – Technical Analysis

The price of Palantir stock has been on a sharp downtrend since September last year at least as the company’s high-flying valuation multiples have been shrinking amid a deterioration in the macro environment.

As of this morning, the yield of the 10-year US Treasury Note is still standing at 2% as market participants continue to expect a tightening in monetary policies this year including the possibility of multiple interest rate hikes, the end of the Federal Reserve’s $120 billion asset purchase program, and even the potential reduction of its massive balance sheet.

For risky financial assets such as equities, and especially for growth stocks, higher Treasury yields lead to higher risk premiums and a corresponding drop in valuations.

Even though today’s quarterly report wasn’t necessarily that bad, sentiment seems to be still pessimistic as indicated by the market’s negative reaction.

Interestingly, the price action ahead of this earnings report broke above the falling wedge formation highlighted in the chart and that favored a bullish short-term outlook for PLTR stock.

Moreover, momentum indicators have been climbing for a while although the Relative Strength Index (RSI) remains below 50. The MACD, on the other hand, is also neck-deep into negative territory but has moved above the signal line in the past few days.

Despite this encouraging technical signal, the mid-term outlook remains bearish unless the price fully reverses the downtrend by climbing above the $20 level at least. For now, the trend keeps pointing downwards.

Palantir Stock – Fundamental Analysis

Palantir’s management is maintaining its guidance of 30% or higher revenue growth for the 2022 fiscal year and that is particularly positive as it keeps the company in the growth category.

That said, the management’s forecasted 400 basis points reduction in its adjusted operating margins indicate that Palantir now needs to pour more money into marketing to keep producing that kind of growth.

This is often a sign that the business is nearing a stage of maturity that could lead to lower top-line growth in the future.

For 2022, Palantir is expected to generate revenues of at least $2 billion. If free cash flow margins remain similar, the company should generate at least $500 million in FCFs.

If the stock declines 7% during the live session as well, the market capitalization of Palantir will shrink to $26 billion and that would result in a forward price-to-cash-flows multiple of 52x.

This ratio is a bit elevated unless the company manages to either increase its free cash flow margin or grow its sales faster than 30%. With this in mind, it would plausible to expect some more negative volatility down the road.

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