Palantir (PLTR): Usually A Post-Earnings Move Isn’t ‘Wrong’ But This One Is

II believe the market is never wrong. When one step doesn’t make sense, the chances are you’ve missed something than the collective wisdom of millions. While I am sure this is true and both made a lot of money and avoided many mistakes by keeping this in mind, there are times when even I am confused.

This morning, Palantir (PLTR) posted gains and shortly thereafter, the stock accelerated losses prior to release, at one point about ten percent below yesterday’s closing price, a level that itself was about fifty-nine percent below its January high. Now, one could argue that the high was way over the top and that the stock had come too far ahead of itself, and I would have agreed with that argument. What doesn’t make sense to me, however, is that this morning’s earnings actually addressed the issues that may have been causing this concern.

The first and most obvious is that for the first time in its brief history as a public company, Palantir actually made a profit in the first quarter of 2021. Yes, it was “only” $ 0.04 per share, but in the modern world, any company, and especially a tech company, that has positive EPS after less than a year of public reporting is pretty impressive. I understand that $ 0.04 fell short of a “whisper number” that was significantly higher, but the way it was achieved should more than make up for this short-term disappointment.

This gain resulted from a forty-nine percent increase in sales. As with all companies, it’s difficult to gauge exactly what this means given the biases in the quarters to which it compares, but it has slightly outperformed Wall Street estimates. For me, however, the comforting part of this growth was the way it was achieved.

The problem I’ve had with PLTR so far is that the company is heavily dependent on government contracts. As any defense industry shareholder or CEO will tell you, this isn’t necessarily a bad thing, given that the federal government is so often pretending to be a drunken sailor. The problem with Palantir, however, is that many people themselves view them as being too overtly political. Co-founder Peter Thiel is known as a kind of radical libertarian, and in the current political environment there is a risk that he is a persona non grata on both sides of the aisle. I suppose that shouldn’t affect the company’s prospects, but it’s Washington, a city that is shaped by perceived trifles.

The fact that PLTR had impressive revenue growth at all in the Biden government’s first quarter is comforting, as is the fact that those results showed they were gradually becoming less dependent on the size of the government. When they went public last fall, the prospectus said they had 125 customers, a number that rose to 149 in the last quarter, and that commercial revenue was up 72% year-over-year.

Typically, when faced with a post-earnings move that seems illogical, all you need to do is dig a little deeper into the numbers. In this case, however, it doesn’t seem sustainable the deeper I go. Customer and sales growth was good, as was the earnings mix. The forecasts for the next quarter were stronger than expected. The only logical conclusion, then, is that PLTR is going down because it is caught in the general risk sell-off in technology this morning, even though its revenues show that it is no longer unprofitable.

It was for this reason that I bought the stock this morning and while most of the losses this morning are being made up as we write, it still seems like a bargain to me at current levels.

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The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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