Palantir Stock Up 9% Today – Time to Buy PLTR Stock?

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The price of Palantir stock is up 9% in pre-market stock trading action this morning following news that the company was awarded a contract from the United States Army Forces to deliver the data fabric and analytics foundation for an important program.

The price tag for this agreement was set at $823 million. However, the contract is an indefinite delivery, indefinite quantity (IDIQ) agreement, which means that the total proceeds that the ultimate proceeds could be much higher. In most cases, IDIQ contracts tend to last as long as five years.

Palantir (PLTR) will engage in a “test, fix, test” process first to then support the Army in the final testing fielding phase of the solution.

“We look forward to the continued partnership with PEO IEW&S and the Army’s Intelligence Community in providing new and exciting technology that help them in their modernization efforts”, said Doug Phillippone, Palantir’s Global Defense Lead.

Can this development prompt the beginning of a fresh bullish cycle for Palantir stock? In the following article, I’ll take a look at the impact that this contract could have on the firm’s financial performance.

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Palantir Stock – Technical Analysis

palantir stock
Palantir (PLTR) price chart – 1-day candles with multiple indicators – Source: TradingView

The price of Palantir stock has been steadily declining amid a broad-market weakness that started in September and that seems to be spilling over to October as well. Last month, the US 10-year Treasury yield climbed from 1.3% to a peak of 1.54%.

Companies like Palantir, which are considered riskier due to their relatively small size and poor fundamentals, tend to be the most battered by an increase in interest rates as the expected rate of return used for its valuation is adjusted upwards and that ends up depressing its appraised value.

As a result, the stock went down nearly 9% last month while it has declined 3.3% so far in October before today’s uptick. This decline led to a break below PLTR short-term moving averages while momentum indicators have been steadily dropping with the Relative Strength Index (RSI) currently standing at 37 while the MACD has dropped to negative territory. This move is being accompanied by steadily declining negative histogram readings as well.

If today’s sharp uptick spills over as-is to the live session, it would push the stock back into the ascending triangle shown in the chart above. However, it remains to be seen if the price action will hold above that threshold as Nasdaq futures are pointing to a sharply negative opening.

Unless the stock moves above its short-term moving averages, the outlook would remain bearish as this broad-market weakness could prompt market participants to ignore the impact of today’s positive development – at least until the overall trend reverses.

Palantir Stock – Fundamental Analysis

Since the contract awarded to Palantir is IDIQ, the $823 million price tag may only partially reflect the extent of the revenues that the firm may generate from it. To put this figure into context, Palantir produced during the first six months of 2021 a total of $717 million in revenues while the firm expects to report $1.4 billion in top-line results for the full 2021 fiscal year.

With that in mind, depending on how quickly the firm bills these $823 million, the impact of this contract could either be meaningful or relatively low. Moreover, it is unclear if Palantir’s management had already modeled its projections to incorporate the revenues coming from this contract. During the second quarter of 2021, the management set forth a forecasted top-line growth of 30% or greater for this year and through 2025.

For the first six months of this year, Palantir managed to deliver $201 million in adjusted free cash flows upon excluding stock-based compensation. This resulted in a major improvement compared to the negative $232.3 million figure the firm reported during the first semester of 2020.

At its current market capitalization of $45.3 billion, the firm is being valued at 113 times its forecasted adjusted free cash flows for the entire year (around $400 million) and at 32 times its forecasted sales for 2021.

Even though the company has demonstrated its ability to grow its top-line results at a fast pace, its valuation multiples remain a bit stretched and that may expose it to further downside if the latest broad-market weakness endures for the next few weeks.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.