Any investor that has bought Palantir must be disappointed so far. But given I could buy shares in the company for less than its IPO price right now, I think it’s worth considering if I should add it to my portfolio.

What I like about Palantir stock

Palantir builds platforms for integrating, managing, securing, and analysing data. It started 17 years ago, providing counterterrorism intelligence to the US government. Now, the company can boast contracts with multiple governmental organisations, including the CIA, FBI and, more recently, the UK’s NHS. Some 58% of revenues come from government sources today. The rest come, unsurprisingly, from the private commercial sector.

Despite being around for a while, Palantir grew its revenues at a very impressive 37% on average per year from 2018 to 2021. According to the latest quarterly results, government revenue grew 13% yearly, with commercial revenue increasing 46% yearly. 

I do have concerns

Despite impressive growth, Palantir has never been profitable. The company expects that to change in 2025. While it’s not uncommon to see large stock-option grants in the years immediately following an IPO, Palantir’s generosity to its senior executives is extraordinary. It granted $1.27bn worth of stock options in 2020, surpassing the company’s revenue for that year.

Now, it could be argued that the company relies on options rather than salaries to reward its management, and that giving them skin in the game is a good thing. However, since 2020, the company’s top management and board members have sold $1.9bn worth of stock. That cannot be seen as a vote of confidence in the company’s future stock price direction. 

Then I have some concerns about the scalability of the company’s product. It embeds its engineers with its customers to better understand their needs and tailor its platforms to their requirements. That’s good for the customer and the relationship. But this is not a turnkey software operation. Each new contract requires new engineers unless they complete one after the other. That sounds expensive and should squeeze margins but looking at Palantir’s accounts and removing the stock-based compensation expense, they don’t, which is odd.

Now that concern is somewhat alleviated by the fall in Palantir’s stock price. Its price-to-sales ratio of nine is more fitting to the type of growth engine I see driving the company than the 30 it once was: that’s more in line with, say, a younger Microsoft, selling bundled software packages that run out of the box.

Would I add Palantir stock to my portfolio?

Despite the impressive growth, I am not convinced by Palantir stock even at this low price. I want to see how costs change as that stock-based compensation expense drops, and it should. I would like to see the company turn convincingly towards that 2025 target for profitability. It will take time to address my concerns. So, I won’t be buying Palantir for my Stocks and Shares ISA in 2022.

This is a company I’ve always thought looks quite interesting due to the fact that it has contracts with a number of government organisations including the FBI, CIA, and the UK’s NHS. Has the share price fall provided an attractive entry point for me? Let’s take a look.

Why did Palantir stock fall?

I can see why Palantir stock has fallen after the Q4 earnings. For starters, adjusted earnings per share for the quarter came in at two cents, well below Wall Street’s estimate for four cents.

Secondly, guidance for this year was a little disappointing. For 2022, the company expects an adjusted operating margin of 27%. That’s lower than 2021’s 31%.

Impressive growth

However, stepping back a bit and looking at the bigger picture, I think the results were pretty solid.

For Q4, total revenue grew 34% year-on-year to $433m. Within that, commercial revenue rose 47% year-on-year while government revenue grew 26% compared to a year ago. During the quarter, the company added 34 net new customers and closed 64 deals worth $1m, or more.

Meanwhile for 2021, total revenue jumped 41% year-on-year to $1.54bn, with commercial revenue and government revenue up 34% and 47% respectively.

And looking ahead, the company expects to keep growing at a healthy pace. Between now and 2025, it expects annual revenue growth of at least 30%.

These numbers suggest the growth story here is still very much intact.

PLTR: risk vs reward

Of course, as always, it comes down to risk versus reward. Is the valuation at a level where the stock’s risk/reward profile is attractive?

Well, assuming Palantir can generate 30% revenue growth in 2022, that would take its sales for the year to around $2bn. This means that at the current share price and market-cap ($28bn), the forward-looking price-to-sales ratio is around 14.

That is a little bit high for my liking, to be honest. Given the growth rate here, I’d prefer to pay a price-to-sales ratio closer to 10. The current valuation adds a bit of risk, in my view.

Another risk to consider here is Palantir’s reliance on large deals with a few customers. If one or more of these customers was to cancel its contract, revenue could take a hit.

An additional risk is lower-than-expected earnings. At present, Palantir aims to generate earnings per share of 20.5 cents for 2022 (this figure will probably fall after the recent guidance). However, the group may not achieve this if it is investing for growth in 2022. This could result in share price volatility.

My move now

Weighing everything up, I’m going to leave Palantir stock on my watchlist for now.

I think the stock is starting to look interesting after the recent share price fall. Growth is impressive and the company has a distinguished list of customers. However, given the valuation, the stock doesn’t make my ‘best stocks to buy now’ list.

A Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) has achieved significant growth over the past few years. Indeed, in 2020, the company recorded revenues of $3.97bn, which was a 73% increase from the previous year. It also expects revenues of over $7bn in 2021, which is similar growth to last year. This places the firm on a price-to-sales ratio of around eight, which is far lower than it has been in the past.

The company’s growth prospects are also strong. This is because MercadoLibre is expanding in both its e-commerce and fintech sectors. Both these sectors are unpenetrated in Latin America, and therefore there is certainly room to grow, especially as MercadoLibre is a market leader.

There are some risks though. For example, many of the jurisdictions where MercadoLibre operate in are seeing political instability. Argentina is one example, as the country has experienced mass hyperinflation over the past few years. This could potentially disrupt MercadoLibre’s business plan. Further, a significant amount of recent growth may have been due to the pandemic. As such, once consumers go back to physical stores, growth may slow.

But while these are risks, the recent dip in the MercadoLibre share price seems too good an opportunity to miss. Therefore, this is a growth stock I’ll continue to add to my portfolio.

A growth stock I’m avoiding

The recent dip in many growth stocks doesn’t mean that they are all bargains. In my opinion, Palantir (NYSE: PLTR), which makes software and analytics tools for the government and other companies, is one example.

But firstly, there are several positives with the company. For example, over the past year, it has managed to see strong revenue growth of around 40%, rising to around $1.5bn for 2021. It has also managed to add many new customers. For instance, in the third quarter, it added 32 new customers. This demonstrates that Palantir’s business plan is working.

But I’m concerned about the valuation of the company. In fact, even after the recent dip in the Palantir share price, it still has a price-to-sales ratio of 18. This is twice the P/S ratio of MercadoLibre, even though Palantir is seeing slower growth. It is also deeply unprofitable, meaning that high inflation is likely to have an ever more profound effect. Therefore, this is a stock I’m leaving on the sidelines.

PayPal: disappointing forward guidance

The PayPal third-quarter trading update was by no means awful. Indeed, the company’s growth continued, and net revenues of $6.18bn were 13% higher than last year. The group also added 13.3m net new active accounts, ending the quarter with 416m active accounts overall. Although revenue was slightly lower than analysts were expecting, the growth rate was still strong. Net income also increased 7%, ahead of expectations.

Nonetheless, it was the forward guidance that spooked investors. In the fourth quarter, the company expects revenues of around $6.9bn, but analysts had been expecting it to be around $7.2bn. This underperformance for the next quarter is partly due to the end of stimulus payments and ongoing global supply chain disruptions. These are both risks that require consideration, and reasons why the PayPal share price fell so significantly.

Even so, I’m still tempted to buy on the dip. For one, PayPal announced that its subsidiary, Venmo, is launching a partnership with Amazon through which shoppers can use Venmo as a checkout option on the site. This could help boost profits. As such, while the tech company trades on a lofty price-to-earnings ratio of over 40, there does still seem upside potential. If the shares fall further, I may buy.

Palantir: a growth stock beating expectations

Palantir was an odd case because the company, which makes software and analytics tools for the government and other companies, beat expectations. Despite this, the shares still fell around 10%.

In the Q3 trading update, revenue was able to reach $392m, which was a 36% increase from last year. While this was a slightly slower growth rate than the 49% recorded in the two previous quarters, it was still good, which demonstrates the potential of this growth stock. The company also managed to add 34 net new customers.

So, why did the stock fall? Well, there are a few potential reasons. First, the company said that its operating margin will shrink in the fourth quarter and will be 22%, rather than the 24% analysts were expecting. This shows that the firm’s operating efficiency is starting to worsen. This is a risk that requires consideration.

Further, Palantir shares are very expensive. In fact, using its expected revenues for 2022, the shares trade on a price-to-sales ratio of around 30. This is three times higher than PayPal. Therefore, while there’s clearly a ton of potential with Palantir shares, its priced too highly for me. This is a stock I’m watching from the sidelines.

Data is the business

Palantir Technologies (NYSE:PLTR) is a company that was, until recently, operating in the shadows. Busily working away, collecting and analysing data on a grand scale. Then, last year, it publicly listed on the New York Stock Exchange and has since seen its share price rise. The $42bn company started its publicly traded life at around $9.20 per share. This rose above $35 in January but has since fallen back to around $23. Its recent results for 2020 showed full-year revenue growth of 47% year-on-year, with projected 30% growth for 2021.

The company has not clearly stated when it can expect continual profitability, but it intends to continue investing in achieving further growth across the board. For example, it plans to spend over $1bn on cloud providers to help scale its software as a service (SAAS) offerings.

In its Q4 earnings call last month, the Palantir executives were very optimistic on the roadmap ahead and clearly believe they’re at the beginning of a massive opportunity to grow and make money. Their revenue target for 2025 is $4bn, which is up considerably from the $1.1bn in 2020.

US stock serving high-profile clients

The company serves government agencies such as the CIA, US army, and many private corporations.

Palantir’s SAAS offering is proving popular because of its speed, security and reliability. Security is crucial as hacking becomes an increasing concern. But this popularity also indicates a change in the way organisations can now collate and analyse their own data to better serve their customers and enhance profitability.

BP saved $1bn in 2020 thanks to Palantir’s Foundry software, which powers BP’s digital twin applications to enhance its hydrocarbon-based workflows. The oil giant now plans to use this software to achieve its net zero aims, thus signing a five-year, nine-figure enterprise contract renewal. Meanwhile, Palantir’s partnership with IBM could prove a lucrative long-term agreement with the potential to strengthen software offerings for industry.

Palantir investment risks to consider

But there are obvious risks associated with the stock, and some analysts are extremely bearish.

It has around 125 customers, which isn’t very many considering it’s been around for 18 years. This makes some investors nervous that it’s not diversified enough and can’t possibly have much room to scale. It’s an expensive stock and priced for future progress.

It’s also been caught up in the GameStop mania and therefore over-traded by short-term speculators and options traders. This led its CEO to criticise short-term traders, as this is a company with a long-term vision.

I expect share price volatility to continue for some time. The tech sector is under pressure as investors worry about inflation. Nevertheless, I think Palantir has what it takes to still be here, far into the future. It’s established with a strong history of government contract wins. Last year its full-year government revenue rose 77%. Therefore, as it deepens its relationship as a major government contractor, I think it will become profitable. With a 10-year window in mind, I’d happily add Palantir to my Stocks and Shares ISA.

However, a rise in US bond yields has caused a large-scale tech stock sell-off. Rising yields are a key indicator of inflation, which erodes the future value of company earnings.

Though this may cause concern for investors, I’m taking advantage of cheaper share prices to top up on three US tech stocks I already hold.

#1. Palantir Technologies: data analytics

Palantir Technologies (NYSE: PLTR) specialises in data gathering and analytics. Its share price peaked at $39 in January 2021, up from $9 in October 2020.

The company offers three different data services, Gotham for governments, Foundry for corporate firms, and Apollo, which manages the two. Its Gotham government contracts provide a stable long-term income. In 2020 the company saw 47% revenue growth to $1.1bn, with 2021 forecasts expecting a similar figure.

However, the current price-to-book (P/B) ratio is around 28, signalling this stock could be overvalued. This is a risk for any investor buying now. For context US tech stock Microsoft trades on of P/B ratio of around 13. However, data collection is only going to accelerate in coming years, as the world increasingly shifts towards technological dependence. Therefore, I expect this stock to have a strong future and will buy more.

#2. NIO: Chinese electric travel

NIO (NYSE: NIO) is a Chinese electric car manufacturer. Its share price surged over 1,100% in 2020. Though the shares are down, this US-listed tech stock does boast some encouraging numbers. One example is the 113% year-on-year increase in production in 2020. It also has a much lower P/B ratio of 13.4, compared to industry leader Tesla’s 28.3. This indicates the current share price could be undervalued comparative to the industry giant.

However, if this US tech stock wants to become a front runner in the electric vehicle industry it will have to fend off some fierce competition, which is a risk that can’t be ignored. Ford has pledged $11bn for electric vehicle research from 2018-2022 and General Motors has set aside as even larger $27bn.

However, as a current investor I’m bullish about this US tech stock’s future growth. I’ll be buying more shares for my portfolio.

#3. Jumia Technologies: African e-commerce

Often referred to as “the Amazon of Africa”, Jumia Technologies (NYSE: JMIA) is a Nigerian e-commerce company. After its IPO in April 2019, this stock suffered some huge cash flow issues with operating losses exceeding revenues. However, throughout 2020 its share price exploded from just under $3, to peak at $65 per share in early February 2021.

With Africa’s lack of infrastructure, e-commerce has been largely overlooked as a viable business plan. Google owner Alphabet and Facebook are two US tech stocks that have announced plans to provide all of Sub-Saharan Africa with internet connections. If these projects are successful, I feel it would put Jumia in a great spot. Jumia’s conservative $4bn market cap also offers room for encouraging upside potential. I’m bullish about this US tech stock’s potential and, again, I’m going to add to my existing holding.

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.

US video game stock

GameStop hot last week. The video game company’s share price surged 70% on Friday and ended the day up 51%. This was the result of increased momentum in an incredibly bullish run that has seen the GameStop share price rise 1,000%+ in just four months. On Monday the stock also opened 47% up on its previous closing price and surged another 50%, only to dramatically fall. It was a rollercoaster day and one that has left analysts dumbfounded.

The retailer has been struggling in response to the pandemic, but has proved a favourite for retail investors. It’s also been a popular stock among short sellers betting against it though. The culmination of the two seemed to be the catalyst for last week’s incredible rise. As more and more buyers pile in to the stock, it forces the price upwards. This means the short sellers are losing money. They then must buy the stock to offset their losses, causing the price to surge even higher in what’s known as a short squeeze. 

Prior to the short squeeze, interest in the stock was rising because sales of next-generation gaming consoles were improving. There was also the prospect of actions by activist investors looking to persuade management to improve its financial future. Nevertheless, GameStop is not a money-spinning US stock with lots of free cash flow and profitability. It’s cash-flow-negative and endured a 30% decline in revenues in Q3. Considering the pandemic has annihilated its business, it doesn’t have much going for it as a viable investment for me. With so much speculation/controversy it may continue to rise short term, but at this price, I don’t see a long-term value investment. I won’t be buying. 

Data on display

Palantir Technologies (NYSE:PLTR) is another US tech stock that enjoyed a price surge on Friday and Monday. Owned by Paypal founder Peter Thiel, it’s a data analytics company that counts the US government and CIA among its clients.

The reason for the price surge appears to have been in response to a recent contract win, plus sheer speculation. Last week it announced a multi-year, multi-million-dollar contract with Pacific Gas and Electric Company. It will provide the utility company with enhanced technology through the use of its Foundry software.

The excitement may also be in anticipation of Palantir’s Demo Day happening today. This will include public demonstrations of its software platforms, Foundry and Gotham. By showcasing its technology, the public will get a clearer picture of how its customers use the software.

Although Palantir is a long-established company with an impressive network of contacts, I think it’s overvalued at its current share price. It’s caught up in the pandemic wave that’s been buoying US tech stocks, I feel. Despite being around since 2003, it was loss-making prior to going public last year. Since then, it’s begun turning things around, which is helping boost its popularity. But time will tell if it can keep up the momentum. I think I’ve missed the boat to invest at a reasonable price point for now.

As a result of this incredible share price rise, PLTR – which listed on the New York Stock Exchange in late September – is getting a lot of attention from investors. Should I buy this new technology stock? Let’s take a look at the investment case.

Palantir Technologies: what does it do?

Palantir is a technology company founded in 2003. Specialising in big data analytics, it builds software that lets organisations condense all their data onto one platform. This makes it easier for them to make crucial decisions.

Palantir has a total of around 125 customers across a range of industries. Its solutions help financial institutions with risk management, healthcare companies with drug development, and automakers with production efficiency. Here in the UK, its software has been used by the NHS to distribute personal protective equipment (PPE) across the country more efficiently during Covid-19.

What I find particularly interesting however, is that its platforms are used by a number of US government agencies, including the FBI and the CIA. These agencies use PLTR’s products to defend against evolving threats to national security. Selling software to these kinds of government agencies is not an easy task. This suggests to me that Palantir has some very good products.

Strong growth

Looking at Palantir’s financials, growth has been impressive recently. For the third quarter of 2020, revenue was up 52% year-on-year to $289.4m. As a result of this strong performance, the company increased its guidance for full-year revenue to around $1.07bn. That will represent growth of 44% over the prior year.

It’s worth pointing out that the group did incur a loss from operations of $847.8m for Q3. However, when adjusting for $847m million in stock-based compensation, $20.2m in related employer payroll taxes, and $53.7m in expenses related to the listing, income from operations was $73.1m.

Valuation

What about the valuation? Is this another expensive growth stock? The answer here is yes, it’s expensive.

After Palantir’s recent share price surge, it now sports a market-cap of around $48bn. That puts the stock on a price-to-sales ratio of 45. That’s very high. It adds risk to the investment case. At least one short seller expects the share price to fall substantially.

Insiders are selling 

It’s worth noting that since Palantir listed on the NYSE, a number of top-level insiders, including CEO Alexander Karp, co-founder and president Stephen Cohen, co-founder and chairman Peter Thiel, and CFO David Glazer have offloaded stock. Combined, these insiders have sold over $100m worth of PLTR stock. Would they have sold that much if they were convinced the share price is going to rise higher?

Should I buy PLTR?

I think Palantir looks interesting. In today’s data-driven world, it appears well-placed for success. The long-term growth potential appears to be significant.

That said, I do have my concerns over the valuation after the recent share price spike. After rising 150%+ in just a few weeks, there’s downside risk.

Weighing everything up, I’m going to keep Palantir stock on my watchlist for now. At present, I think there are better stocks to buy.