Palantir Is on Sale and I'm Buying for Future Generations

One of my favorite stocks is on sale today -- 4% off, 5% off or more. 

Why is Palantir Technologies PLTR down more than a buck Thursday with most of the rest of the market relatively flat? Was it the fact that GDI not only kept up with GDP in the fourth quarter, but actually exceeded it? That certainly is a kick in the pants for anyone hoping for a Fed rate cut anytime soon. 

Nobody is going to cut rates in an environment where GDP, GDI, CPI, Core CPI, PPI and Core PPI are all printing on the warm side. That would be overtly reckless or political. For now, rates stay where they are.

No, Palantir is down on Thursday because five-star analyst Brian White of Monness Crespi downgraded the stock to an outright "Sell" from a "Neutral" rating, while setting a $20 price target price. 

The problem for the stock is not the negative take, it's the quality of the analyst. White is not just any "five-star" rated analyst, he's one of the best. At TipRanks, White is ranked at number 41 of the 8,772 analysts rated by the service. TipRanks also has him as number 148 of all Wall Street experts ranked. The service claims for Brian White a 67% success rate over one year with an average return of 21.5%.

Valuation?

White acknowledged Palantir's 2023 and 2024 run as the result of an unprecedented business spending cycle into the era of generative AI. The hype that has gone along with that, in White's opinion, has left PLTR decisively overvalued. In his view, Palantir certainly is well-positioned to be one of the benefactors from this trend in the long-term. That said, government-driven revenue has proven inconsistent of late and a downturn is likely ahead of that long-term sunshine.

For those wondering, Palantir is certainly expensive by traditional metrics. The stock trades at 74 times forward-looking earnings (probably a little less now), 25 times sales and 15 times book. 

For comparison's sake, we'll look at Snowflake SNOW, which is not a head-to-head competitor to Palantir, but they are both big data-driven AI operations that service customers analytically while providing security around the information. The two exist with similar market-caps. Snowflake trades at 200 times forward-looking earnings, 19 times sales and 10 times book. So, they both seem extremely expensive in different ways, but broadly expensive in every way.

Is that the price of being invested in the future? Perhaps. If one accepts that the future may be volatile, that is. 

Both firm's produced between $300M and $350M in operating cash flow for their most recent quarters. Both have fortress-like balance sheets. That's worth something right there. Neither has any debt on the books. Snowflake does have more unearned revenue on the current liabilities side of the ledger. 

Palantir and Snowflake are both great companies and both, in my humble opinion, worthy of trading well above standards of valuation seen as mean for the S&P 500.

More Info

It was only recently that Brian White upgraded SNOW from a "Sell" to "Neutral." That means that year to date, White had a "Sell" on SNOW and a "Hold" on PLTR. Psst... PLTR is up 35.8% year to date, while SNOW is down 18.6% for 2024. He nailed SNOW, but he was wrong about PLTR. 

My track record in PLTR has been much stronger. Going back to the Stocks Under $10 Portfolio days, I have been a Palantir bull since it was trading in the mid-single-digits. That is a rough 300% run, give or take. I like my batting average on this one. 

Palantir remains a top-15 long-side allocation for me. My price target remains $27. I expect that I will add to my long position today. This name, I buy for the generations of Guilfoyles who come after I am gone.

Almost Forgot...

Remember it was less than three weeks ago that five-star analyst Dan Ives of Wedbush increased his price target for PLTR to $35 from $30, while reiterating his "Buy" rating. Not a bad ally to have.

At the time of publication, Guilfoyle is long PLTR.