Your Decision to Buy Palantir May Simply Be a Matter of Time

Key Points

• Palantir Stock got a short-lived bounce after announcing its latest defense contract. 
• The contract is another example of the company doing what it does best, and the company believes it’s a growth path. 
• Investors remain concerned that the company is having trouble generating significant profit.  
• PLTR stock may allow for short-term trading, but the long-term opportunity has yet to show itself. 

Well, it was fun while it lasted. Traders had some holiday fun with Palantir Technologies Inc. NYSE: PLTR stock a few days before the Christmas holiday. On December 21, PLTR shares went up 5% on the news that Palantir was awarded a multi-million deal with the United Kingdom's Ministry of Defense. But the following day, the stock had given up most of those gains.  

That leaves Palantir shareholders in a similar situation to what they've been facing for the better part of 2022. As a result, PTR stock is down 65% for the year. And since the stock is down 82% since soaring above $35 a few months after its direct public offering in October 2020.  

There are entrenched points of view on both sides of the Palantir debate. And you should understand both if you haven't already taken a position on (or in) PLTR stock. 

Continuing to Build on Strength 

The week's news is that Palantir landed a three-year, $91 million deal with the United Kingdom's Ministry of Defense. Palantir will use its Gotham software platform to aid the country's military operations and "prompt possible real-time actions to provide how various choices might play out." 

This is Palantir doing what it does best. The company made its name because of its contracts with the United States Department of Defense and several other U.S. government areas.  

The contract won't do much to appease critics concerned that Palantir is too reliant on contracts from the public sector. But big data is critical to the defense industry. And that will be particularly true in Europe. In a letter to shareholders, Palantir chief executive officer (CEO) Alex Karp stated: 

"It has been our experience, however, that some countries, particularly in continental Europe, including Germany, have fallen behind the United States in their willingness and ability to implement enterprise software systems that challenge existing habits and modes of operation." 

Karp also predicted increasing global revenue as many of the largest international companies look to U.S. peers for guidance on which software systems to adopt. The implication is that Palantir will be recommended.  

When Will the Company Generate a Profit? 

Despite the stock price falling by 65% in 2022, Palantir still has a market cap of just over 13 billion. That breaks out to a valuation of approximately eight times revenue.  

And in the last two quarters, the company has posted negative EPS even as it continues to grow revenue. Some of this is understandable. Palantir has made significant investments in building its sales team as it tries to develop its commercial business.  

However, as we head into a year where many analysts project an earnings recession, PLTR stock may not fit in with every portfolio. Should it fit yours? 

Palantir Will Take Time 

When I last wrote about Palantir, I told you I wasn't ready to invest for two reasons. First, I wanted to get a clearer picture of what was happening in the economy. Second, I didn't understand if Palantir offered its customers a game-changing approach to data analysis and cybersecurity.  

I'm not sure I have a clearer picture of the economy. But it's fair to say that things will likely get worse before they get better, particularly if you're an unprofitable company like Palantir.  

As for the second issue, I'll confess to not knowing what I don't know. But I also have no reason to believe it doesn't offer a better mousetrap. And much of the criticism about Palantir's dominance with the U.S. and foreign governments begin to sound like hating the player rather than the game. 

Still, PLTR stock is a long-term play, and if you're looking for gains in the next 12 months, there are likely to be other stocks for you. But if you have the time and believe in the company's software solutions, PLTR stock may be a good fit.