What happened
Investors got a reminder of the capabilities of Palantir Technologies' (PLTR -3.40%) products, helping to reinforce the bull case for the stock. Shares are surging higher as a result, up as much as 9.5% on Thursday morning.
So what
Palantir came to market in late 2020 to great enthusiasm, based largely on the reputation of its technology. The data-analytics provider is credited with helping the Pentagon find Osama bin Laden and with flagging the Bernie Madoff Ponzi scheme. But in the quarters since its debut the excitement about the technology has been counteracted by the realities of trying to grow a business.
After initially climbing nearly 300% from the initial public offering price, shares of Palantir have given those gains back over the past year.
Late Wednesday, investors got a fresh reminder of the potential in Palantir's CIA-funded technologies. CEO Alex Karp, speaking at a Palantir event, said that Ukraine is using his company's software for precision targeting as it battles Russia. He said that Ukraine is compiling information on Russian troop movements based on Palantir software that helps to quickly process and make sense of vast quantities of data coming in from satellites and from the battlefield.
Palantir also provided updates on more mundane, but equally important, business development. The company is expanding its work with Sompo Holdings of Japan via a five-year, $50 million contract to help the insurance company better manage through aging demographics and other challenges to its business.
Now what
The excitement surrounding Palantir's potential is understandable, but investors need to be careful not to get ahead of themselves. Even after its declines over the past year, Palantir trades at more than 9 times sales. That's competitive for a commercial data analytics vendor, but well above other government contractor stocks like Booz Allen Hamilton, which trades at just under 1.4 times sales.
Palantir arguably has technology that is unmatched by Booz Allen Hamilton, and it is growing faster than other government services companies. But for all of the impressive wins for its tech, it so far remains an expensive, niche product unlikely to soak up significantly more government funds anytime soon. And while Palantir has made some progress expanding its commercial business, that progress has been slower than what investors had originally hoped for.
This is a good business seemingly making an important contribution in Ukraine, as it has made important contributions before, but as a stock it seems fairly valued. Investors should use caution if they're considering buying in on the excitement.
