Will The Real Palantir Please Stand Up?

I apologize for the hackneyed headline. But I do think it conveys my sentiment about Palantir PLTR. Or rather, I think it conveys the overall market sentiment.

There are many polarizing stocks. But I've found few that generate so much passion as Palantir.  

On the one hand, there is a bullish crowd that believes the company's software solutions are the greatest thing since sliced bread. On the other you have a bearish crowd that sees the company as hopelessly overvalued and years away from being profitable, if indeed they ever will be profitable.  

In this article, I'll provide an overview of the current state of play with Palantir so you can decide if PLTR stock is right for your portfolio.  

The Next AWS? 

The bullish argument for Palantir comes down to whether you believe CEO Alex Karp who continues to say that Palantir will be to this decade what Amazon AMZN Web Services (AWS) was in the last decade. That big claim is rooted in Palantir's ability to customize its software solution to the problem at hand. In theory, it will replace the need for homegrown, cloud-based software solutions.
The market for data analytics and business intelligence is forecast to grow by 25% through 2025. Coincidentally that's when Palantir is forecast to become profitable. And the company is projecting that revenue will grow 23% in 2022. However, that $1.9 billion is lower than previously forecast and the company is walking back its earlier forecast of 30% annual sales growth.  

That gives credence to the Palantir bears who believe the company's growth projections are improbable. And there's reason to believe that. It's not a good sign when a company such as Palantir walks back its own projections. 

Does Palantir Have a Better Mousetrap? 

For the bullish argument about Palantir to be true, investors need to believe what Palantir CEO Alex Karp made clear in his latest letter to shareholders. That is, that Palantir's software cannot be duplicated. Therefore, while company's may not like working with the company (more on that later), it offers a solution to big data that is unmatched.  

And the company has done an admirable job of increasing its pool of commercial accounts. When the company first went public via a direct listing, this was a sticking point for many investors. They saw the company which had contracts with the U.S. government, most notably with the military-industrial complex, as being a one-trick pony. 

At What Cost Growth? 

The problem it seems is that the company is pumping a considerable amount of money into sales and marketing. Some of that is understandable because the company had to build up its sales team to bring in the commercial accounts.  

What continues to be of concern is the company's practice of rewarding executives, including Karp himself, with stock-based compensation. It was hard for investors to swallow this when the company was showing sturdy growth. It will be even harder if that growth slows significantly.  

PLTR Stock Stays on My Watchlist … For Now 

I've been eyeing PLTR stock for some time. And now that the stock is trading below its direct listing price, I'm more than a little tempted to climb aboard. But I'm not going to buy right now. And my reasoning is two-fold. First, I want to get a clearer idea on the state of the overall economy. No, I don't think Palantir will lose customers. But I do think it may continue to show sluggish growth. That would be all the evidence the bears need to drive PLTR stock lower.  

And second, as much as I try, I'm not sure I understand enough about what Palantir does to convince myself that they offer a unique selling proposition (i.e. a better mousetrap). Karp will certainly disagree with me. But I don't know what I don't know so I'll wait for more data before diving in on this one. If I'm wrong, PLTR stock will still be a bargain.  

The article "Will the Real Palantir Please Stand Up? " first appeared on MarketBeat.

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