ARK Invest portfolio manager Cathie Wood is one of the biggest names in investing right now. As a result of her success with Tesla stock and Bitcoin, many investors are watching her moves closely.
Recently, Wood bought data analytics company Palantir Technologies (NYSE: PLTR) for her ARK portfolios. This is a stock I covered in November. With Wood buying in, I feel it’s time to take another look at the investment case.
Wood buys Palantir stock for ARK Invest
Since I last covered Palantir stock, there have been several interesting developments. Firstly, the company has signed a number of major deals with blue-chip companies and governments organisations.
In December, for example, Palantir announced it was awarded a $44.4m, three-year contract with the US Food and Drug Administration. In the same month it also signed a new two-year contract worth up to $31.5m with the UK’s National Health Service.
More recently, Palantir announced that it has extended its partnership to support BP in its work towards becoming a net zero company by 2050, or sooner. It also recently partnered with IBM to help businesses deploy AI applications. These kinds of major contracts suggest Palantir has a strong offer.
Secondly, Palantir has posted its fourth-quarter and full-year results. These showed it’s continuing to grow at a rapid rate. For Q4 2020, PLTR generated revenue of $322m, up 40% year-on-year. Meanwhile, for the full year, revenue was $1.1bn, up 47% year-on-year.
Looking ahead, the company said it expects Q1 2021 revenue growth of 45% and by more than 30% for the full-year. This all sounds quite positive, in my view.
PLTR: risks
However, I do have some concerns about Palantir stock. The first is the valuation. At its current share price of $29, Palantir has a market-cap of about $50bn.
Looking at analysts’ sales and earnings forecasts, PLTR currently trades on forward-looking price-to-sales and price-to-earnings ratios of 34 and 181 respectively, using FY2021 forecasts, and 26 and 138 respectively, using FY2022 figures. These are expensive. The price-to-sales ratio for FY2021 is about twice that of Tesla.
I’m also concerned about analyst sentiment. Of the eight brokers covering the stock, two rate it as a ‘sell’ and two rate it as a ‘strong sell.’ It’s not often you see that kind of bearish sentiment. Some analysts are concerned about the losses the company is generating. The recent results showed a net loss of $1.2bn for 2020, up from a net loss of $580,000 in 2019.
Insider selling is also worth mentioning here. Data shows that on 18 February, co-founder and chairman Peter Thiel sold over $500m worth of stock. That’s slightly concerning, in my view.
Finally, PLTR stock is also currently one of the most discussed stocks on Reddit’s WallStreetBets. We’ve seen recently that WSB stocks can be highly volatile.
Should I buy Palantir stock?
Weighing everything up, I’m going to keep this Cathie Wood stock on my watchlist for now. I certainly think Palantir looks interesting. It clearly has a great offer and top-line growth is impressive.
However, I am concerned by the valuation, analyst sentiment, and insider selling. All things considered, I think there are other growth stocks that are a better fit for my portfolio right now.