Palantir Stock: Buy or Sell (My Final Verdict) | PLTR Stock Deep Dive Part 3

SUMMARY

Parkev Tatevosian, CFA, provides a comprehensive analysis of Palantir's financial performance, customer growth, and updated valuation metrics. He concludes by reiterating his buy rating for Palantir, citing strong fundamentals and continued undervaluation relative to intrinsic value estimates.

MAIN POINTS

• Palantir's revenue per customer is high, with a 35% year-over-year increase in U.S. commercial customers and 26% growth in international commercial revenue. [0:30]
• The company's net dollar retention ratio rose to 157%, and remaining deal value and performance obligations saw significant year-over-year increases. [2:00]
• Palantir achieved a 47% operating margin in the second quarter, reflecting improved profitability alongside strong customer value. [3:02]
• The company generated $1.2 billion in cash flow from operations and holds $9.2 billion in cash, with restrictions on share buybacks due to its defense contractor status. [4:02]
• Despite a sharp share price increase, Palantir's forward price-to-earnings ratio and backlog support the view that the stock remains undervalued. [6:00]
• Tatevosian reiterates his buy rating for Palantir, noting that his fair value estimate continues to rise while the market price remains below intrinsic value. [8:02]

DETAILED ANALYSIS

Palantir Technologies has demonstrated robust financial performance, characterized by a notable ability to generate substantial revenue from a relatively small but growing customer base. The company reported a 35% year-over-year increase in U.S. commercial customers, reaching 653, and a 26% rise in international commercial revenue. This growth is amplified by the fact that existing customers are expanding their spending, as evidenced by a net dollar retention ratio of 157%, up 700 basis points from the previous quarter.

The remaining deal value surged by 83% year-over-year to $13.1 billion, and remaining performance obligations more than doubled to $4.9 billion, indicating strong forward visibility and customer commitment.

Palantir's financial discipline is reflected in its operating results, with second quarter operating income reaching $912 million and a margin of 47%. This margin surpasses that of some larger technology companies and underscores the company's ability to deliver value profitably. The business generated $1.2 billion in cash flow from operations and $1.22 billion in adjusted free cash flow, while maintaining a substantial cash reserve of $9.2 billion.

Due to its status as a defense contractor, Palantir is restricted from share buybacks, but it can deploy its capital through acquisitions, improved credit terms, or investment in short-term government securities.

Valuation remains a focal point, especially after a significant jump in the share price. Despite this, the company's forward price-to-earnings ratio of 70 is considered attractive given its nearly 93% revenue growth and strong operating margins. The intrinsic value per share, based on updated discounted cash flow analysis, has increased to $193, compared to a market price of $158, suggesting continued undervaluation.

Over the past few years, the fair value estimate for Palantir has consistently risen in response to improved quarterly performance, while the share price has not always kept pace. This divergence has presented buying opportunities, such as when the stock fell below $110 per share earlier in the year. The analysis concludes with a reaffirmation of the buy rating, supported by both fundamental and valuation metrics.

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