Please ensure Javascript is enabled for purposes of website accessibility

Is Palantir Ready to Grow Into Its Stock's Mega Valuation?

By Motley Fool Staff – Dec 26, 2021 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company will need to expand in a sustainable way.

In this segment of Motley Fool Live, recorded on Dec. 7, Fool contributor Lou Whiteman explores some of the areas that Palantir (PLTR 2.64%) should focus on to increase business in the coming years.

10 stocks we like better than Palantir Technologies Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Palantir Technologies Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of December 16, 2021


Lou Whiteman: I would argue that they probably do deserve a premium multiple to those other three on the list. The question is how much? Government remains more than half of the business. Palantir is an 18-year-old company. They have only been public a year, but they have been around a long time, and it took them that long to get to a billion dollars in sales.

Yes, they're accelerating. Yes, they are building that commercial side the best they can. But I do think it's a fair question. How quickly will they get to 5X, 10X, where you start to justify even a more reasonable hybrid valuation.

Commercial is growing faster, but only slightly faster. Commercial grew 37, defense grew 34. That is not the recipe to be a commercial focus company. They are not going to turn into Snowflake (SNOW 4.98%) overnight. They are going to be at least a cousin of Booz Allen [a part of Booz Allen Hamilton Holding Corporation (BAH 0.68%)] for a long time.

I think you have to remember that when you're figuring out how to value it. Finally, commercial growth in the last quarter, the reason they hit 37% was, they invested in a whole bunch of SPACs and all of those SPACs signed up to be Palantir customers.

It's genius. I have no problem with it. I question if that is a sustainable way to grow the business. Fact is, they've partnered with IBM, they've done a couple of things that indicate they are finding it harder than they thought to sell to commercial customers.

Partner with IBM is probably smart, but it also means you're going to split the pie. Bottom line is, it's not an all-or-nothing. It's not an either-or. I believe both of these statements are true. Palantir is an impressive company with amazing technology, and I will add, they can do things that others can't.

Also, though, Palantir will need to grow the commercial business sustainably in years to come to even begin to justify its valuation. I like the company better than the stock, and I've liked it since it went public here.

I think there's been a real disconnect between, I guess the analyst community which isn't really high on this stock, and David Gardner hates this, but the retail investors who have really been caught up in the story and it's a great story to be caught up in.

But I just don't see a pathway where this becomes Snowflake, and not at least reliant on the Booz Allen part of the world. We have a long track record of under two times sales valuations. Even if you give Palantir the benefit of doubt and say they go to 15X, that's a ways down from where we are even after we've fallen.

Lou Whiteman owns Booz Allen Hamilton. The Motley Fool owns and recommends Palantir Technologies Inc. and Snowflake Inc. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.