Palantir Technologies'(PLTR +1.41%) stock shot 23% higher in Tuesday's trading as the company reported earnings for the first quarter of 2023. This took the stock past its 52-week highs as investors feel increasingly confident about a turnaround.
That optimism comes after a brutal sell-off. After falling from the $45 per share range in early 2021, the AI stock dropped below $6 per share. But since reaching that low, the stock has surged higher by more than 60%. That stock price increase points to the increasing likelihood of a sustained comeback, and three factors likely explain why.
NASDAQ: PLTR
Key Data Points
1. Unique, AI-driven product offerings
For one, Palantir's tools continue to become increasingly popular. The Apollo operating system, Gotham national defense tool, and the Foundry platform for commercial customers continue to drive unprecedented demand as they apply AI to deliver analytical insights. Also, since competitors have not offered a comparable product, it benefits from its unique position in the marketplace.
That strength should only grow as it introduces its fourth platform, Palantir AIP, which stands for artificial intelligence platform. Palantir AIP deploys large language models (LLMs) and other types of AI, action graphs, and a control plane to represent actions, processes, and decisions fully. This model should bolster its AI credentials, becoming an increasingly critical component in conducting analyses.
2. Improved financials
Moreover, Palantir delivered its second profitable quarter in a row, reporting net income of more than $17 million during the first quarter of 2023. And unlike the previous quarter, it earned a positive operating profit, reporting $4 million in operating income. The $21 million it earned in interest income minus other expenses led to the $17 million profit.
The company added that it expected profitable quarters for the rest of the year. That may have led to a massive increase in the stock, especially amid falling revenue growth. Palantir's $525 million quarterly revenue in Q1 increased 18% year over year. That falls short of the 30% annual revenue growth goal previously outlined for the 2022 to 2024 period outlined one year ago.
Still, after the brutal sell-off over the past two years, investors have placed an increasing priority on profitability. For that reason, shareholders may overlook the slower-than-anticipated revenue growth.
3. Reasonable valuation
Furthermore, despite an approximate 60% increase in the stock price since December, investors need to pay closer attention to its sales multiple.
Indeed, Palantir began its trading history as a pricey stock. In 2021, its price-to-sales (P/S) ratio rarely fell below 25 and reached a high of 46 in January of that year. Today, even after the recent run-up in the stock price, its P/S ratio of 10 remains low by historical standards. Also, while these companies are not direct competitors, it remains considerably cheaper than another prominent data company, Snowflake, which supports a 25 P/S ratio.
Also, with only two quarters of profitability, it does not yet have a current P/E ratio. But with analysts estimating a forward P/E ratio of 47, its earnings multiple appears low for a newly profitable, high-growth company. Although Palantir did not forecast a specific net income for the year, the growing revenue increases the likelihood of increasing profits, which could become a catalyst for a rising stock price at these levels.
Consider Palantir
Ultimately, its products, profitability, and comparatively low valuation bode well for Palantir stock. Initial interest in its AIP platform appears high, and its existing platforms have attracted increasing attention. Additionally, the company's positive net income should make many investors more comfortable with this stock in today's struggling market.
Admittedly, Palantir's discounted P/S ratio comes amid a sell-off that went on for nearly two years. But with the company in a stronger financial and market position, it may finally have begun to make a sustained move to the upside.
