Palantir (PLTR -0.23%) became one of the more notable victims of the tech bear market. From peak to trough, it had fallen as much as 87% from its all-time high.
But since reaching that low in December, it has risen by approximately 50%. Does that make it one of the top growth stocks to buy, or has it come too far too fast? Let's examine Palantir more closely.
The state of Palantir
Palantir began with an analytics platform called Gotham for national defense and law enforcement purposes. Palantir Apollo, its underlying SaaS solution, supports this software, deploying artificial intelligence and machine learning to analyze disparate data sources and deliver insights.
Palantir also developed a second analytics platform called Foundry, which Apollo also supports. It applies analytics capabilities to the commercial sector. Foundry is also the likely growth driver for the company, given the limited number of government entities that might take an interest in Gotham.
A variety of companies have taken an interest. For example, Cardinal Health teamed up with the company to deliver insights on purchasing decisions to save money. It also works with Cloudflare to increase the visibility of cloud costs and reduce spending on multi-cloud applications.
At a $1 million monthly subscription cost, Palantir's capabilities do not come cheap. Still, a growing number of companies choose Palantir because no other offerings can match its capabilities. As of the end of the third quarter, 132 commercial customers in the U.S. used Foundry, up 124% over the previous year.
Palantir by the numbers
For the first three quarters of 2022, that growth helped bolster its $1.4 billion in revenue for the period. That is 26% more than it earned in the first nine months of 2021. While that may look promising, it appears to fall short of the goal of 30% annual revenue growth that CEO Alex Karp outlined for the 2022-2024 period.
Also, the losses continue. For the first three quarters of 2022. Palantir lost $460 million, up from $364 million in losses for the first nine months of 2021.
However, the underlying numbers show improvement on this front. Operating expenses only increased by 2% during the period. Instead, it was the $261 million in "other losses," most of which were unrealized losses in investments, that weighed on earnings. Another $435 million in stock-based compensation during the period also contributed to Palantir's negative earnings.
Investors may have other reasons for optimism. Despite the current price of just under $9 per share, Palantir still trades at 80% below all-time high. Additionally, its price-to-sales ratio is currently about 10. Though not a record low, it is well under its record of 46 from January 2021. Hence, given the history of the SaaS stock, it may sell at a comparatively inexpensive sales multiple.
PLTR PS Ratio data by YCharts
Is it too late to buy Palantir?
Considering Palantir's outlook and current valuation, it is likely not too late to consider its shares -- even though its losses continue, and revenue has not quite matched expectations.
However, Palantir offers a value proposition no other company can match, and the increasing interest indicates the company's clients deem its software worth the considerable expense. As companies look for ways to save money and find new opportunities in a sluggish economy, that interest appears to bode well for Palantir and its stock.
