Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.

The stock gained marginally over the past month to close the last trading session at $7.95. However, it has declined 54.9% in price year-to-date and 68.3% over the past year.

The Fed’s consecutive interest rate hikes have triggered a massive tech selloff this year, with the tech-heavy NASDAQ composite slumping 33.6% year-to-date. As the rate hikes are not expected to stop anytime soon, PLTR could witness further downtrend.

In addition, Wall Street analysts are bearish on the company’s growth. PLTR’s EPS is expected to decline 50% year-over-year to $0.02 for the quarter ending September 2022. Moreover, its EPS is expected to decline 61.5% year-over-year to $0.05 in 2022. It missed EPS estimates in three of four trailing quarters.

Here is what could shape PLTR’s performance in the near term:

Declining Bottom Line

For the second quarter that ended June 30, 2022, PLTR’s revenue came in at $473.01 million, up 25.9% year-over-year. However, its net loss increased 29.4% year-over-year to $179.33 million. Its loss per share came in at $0.09, up 28.6% year-over-year. Moreover, its adjusted EBITDA came in at $112.74 million, down 7.2% year-over-year.

Stretched Valuation

PLTR’s forward EV/Sales of 8.24x is 211.4% higher than the industry average of 2.65x. Its forward EV/EBITDA of 43.24x is 256.2% higher than the industry average of 12.14x. Also, its forward Price/Sales of 8.93x is 262.1% higher than the industry average of 2.47x, while its forward Price/ Cash Flow of 61.85x is 286.5% higher than the industry average of 16.00x.

Poor Profitability

PLTR’s trailing-12-month negative EBITDA and net income margins of 12.38% and 30.90% are lower than the industry averages of 12.18% and 3.71%, respectively.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of negative 24.40%, 5.89%, and 16.42%, compared with the industry averages of 6.51%, 3.72%, and 2.16%, respectively.

POWR Ratings Reflect Bleak Prospects

PLTR has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has an F grade for Value, consistent with its higher-than-industry valuation multiples. Furthermore, the stock has a D grade for Stability, in sync with its 24-month beta of 1.89.

In the 26-stock Software - SAAS industry, PLTR is ranked #20. For other top stocks in this industry, click here.

We also provide Growth, Momentum, Sentiment, and Quality grades for PLTR, which you can find here.

Bottom Line

PLTR’s shares have taken a dive this year. The stock is trading near its 52-week low of $6.44, which it hit on May 12, 2022. Moreover, its negative profit margins and stretched valuation are concerning. Amid the volatile broader market, I think PLTR might be best avoided.

How Does Palantir Technologies Inc. (PLTR) Stack Up Against Its Peers?

While PLTR has an overall POWR Rating of D, one might consider looking at its industry peers, Park City Group, Inc. (PCYG), which has an overall A (Strong Buy) rating, and Informatica Inc. (INFA), and New Relic, Inc. (NEWR), which have an overall B (Buy) rating.

PLTR shares were trading at $8.14 per share on Thursday afternoon, down $0.08 (-0.97%). Year-to-date, PLTR has declined -55.30%, versus a -20.65% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

More...