Palantir Slips: An Entry Point Comes Into Focus

Key Points

• Palantir had a solid quarter, but the strength was priced into the market. 
• The guidance was raised, but not enough to spark a rally. 
• A share repurchase plan will help support the market, but not soon. 

Palantir NASDAQ: PLTR stock price hit a top before the Q2 earnings release and is pulling back now that the news is in. However, it is unlikely the post-release pullback will result in a significant downturn, given the report's details. The headline figures were as expected, which is the worst that can be said.

Aside from that, the company grew by double-digits, widened margins, posted GAAP and adjusted profits, and raised guidance. 

The most compelling piece of data is the share repurchase program. The board approved a share repurchase program that some view as bearish. The use of capital is seen as irresponsible, but that is taking the news at face value. The board authorized up to $1 billion in repurchases with 2 stipulations that favor higher share prices. 

The first is that the company will post at least another quarter of profitability. That will prove its ability to continue generating the capital necessary to sustain operations and have some left over for prudent share repurchases. The 2nd is that the repurchase program has absolutely no other requirements and makes no promises.

Ultimately, it is a show of confidence from the board that they believe the company is on track to sustain profitability far into the future. In that scenario, $1 billion is the minimum in share repurchases that investors should expect. 

Palantir Has Solid Quarter, Shares Fall 

Palantir had a solid quarter marred only by revenue and earnings being exactly as expected. The $533.32 million net revenue is up 12.8% and aligns with the Marketbeat.com analyst’s consensus estimate.

The growth was driven by a 15% increase in Government, led by a 31% increase in International Government and bolstered by a 10% gain in Commercial. US sales grew by 20% in the Commercial segment to lead the group. 

The margin news is also good. The GAAP and adjusted margins widened to drive the 3rd quarter of profitability. The bad news is that $0.05 in adjusted EPS is as expected, giving no reason for the market to rally.

Even the guidance, which was increased, left early traders wishing for more. The company raised its outlook for FY revenue to be greater than the previous low-end, which is a sign of strength but also aligns with the consensus outlook.

The caveat for bearish traders is that the customer count grew 8% sequentially and 38% YOY and shows growing momentum. The guidance is likely cautious.

Palantir: The Tesla Of Cyber Security Stocks 

Palantir analysts are as mixed about the valuation of PLTR stocks as they are for Tesla. The problem with TSLA valuation is that it’s hard to know exactly what the company is because it’s an OEM, a tech stock, and a growth company, and the Elon Musk factor plays a part.

Likewise, Palantir is a cyber-security stock different from the rest because governments use its data-tracking and analysis at the highest levels of security, and scientists use it to create new medicines.

The applications are virtually endless, so its revenue avenues are hard to fathom. The bottom line is that the consensus is Reduce, but the price targets (in a wide range) are increasing, and retail interest is growing. PLTR is #11 on the list of Marketbeat.com’s Most Followed Stocks. 

The Technical Outlook: PLTR Is At A Critical Juncture

The price action in PLTR is trading within a wide range and at a critical pivot point. The recent top marks the midpoint of the range and may provide significant resistance. If the market can not get above that level, it will remain range bound within the lower portion of the larger range.

If the market can move above resistance at $19.50 and hold it, a sustained rally may form. The stock could move back into the $24 to $28 range in that scenario.