What happened

It has been a little over a year since Palantir Technologies' (NYSE:PLTR) much-celebrated initial public offering, which saw the stock jump nearly 150% from its initial trade through September. But the growth that investors had hoped to see at the time of the IPO failed to materialize in the company's third quarter, causing shares to trade down 20.2% for the month, according to data provided by S&P Global Market Intelligence.

So what

Palantir is a data analytics company that sells to both the government and the private sector. Its tech is well regarded, and credited both with helping the Pentagon find Osama bin Laden and with sniffing out the Bernie Madoff fraud.

A person points to a digital icon of a lock, which is connected to other digital icons including a cloud and an envelope.

Image source: Getty Images.

But the company's third-quarter results, released Nov. 8, gave investors little reason to get excited. The company earned $0.04 per share, matching analyst estimates, on revenue of $392.15 million that beat expectations by $7 million. But the year-over-year growth rate, while still an impressive 36%, slowed from the 49% growth in the first half of 2021.

During the quarter, commercial revenue grew by 37% and government revenue grew by 34%. The government side remains the larger of the two businesses, representing about 56% of total revenue generated during the quarter.

Wall Street was not impressed. William Blair analyst Kamil Mielczarek in a post-earnings note expressed concern about Palantir's ability to maintain a 30% growth rate over time, and RBC Capital's Rishi Jaluria downgraded Palantir to underperform and cut his price target, calling commercial growth "unsustainable" and warning Palantir's valuation is "full."

One of the few post-earnings optimists, Morgan Stanley's Keith Weiss, upped his price target to $24 from $22 but said the quarter "opens up the debate on the durability of Palantir's growth."

Now what

The good news is Palantir is still a double since its IPO. The bad news is the stock has gone nowhere for nearly a year.

PLTR Chart

PLTR data by YCharts

Palantir has excellent tech and a bright future. But so far during its brief time as a public company, it has done little to justify what is still a lofty valuation. Palantir even after November's declines trades at more than 27 times sales. That's rich, though not outrageous, for a commercial data analytics company, and sky-high compared to pure-play government contractors like Booz Allen Hamilton, which trades at less than two times sales.

If the company is successful in dramatically expanding its commercial business in the years to come the stock can eventually justify that premium. Alas, there was little reassurance it will get there in its latest quarter, and the stock fell in November as a result.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.