The Palantir stock price continued soaring after it published strong financial results. PLTR shares jumped by 4.5% to a record high, bringing its market capitalization to over $380 billion. It has jumped 550% in the last 12 months, making it one of the best-performing companies.
Palantir business is firing on all cylinders
Palantir published strong financial results, demonstrating strong demand for its software. Its US revenue jumped by 68% YoY and 17% QoQ to $733 million.
Most importantly, its US commercial revenue is bridging the gap with its government revenue as more companies embrace its technology. The division made $306 million in revenue compared with the government segment’s $426 million.
The combined revenue jumped by 48% to $1 billion as the company closed 157 deals worth at least $1 million. More companies are embracing its Foundry solution, which helps companies integrate data from various sources and analyze it well.
Most importantly, the company is benefiting from its AIP solution, which helps other firms build artificial intelligence (AI) applications. For example, a company like Fannie Mae is using its technology to accelerate mortgage fraud detection.
Consequently, the company’s adjusted free cash flow jumped to $568 million, while the adjusted EBITDA was $470 million. In a statement, Alex Karp, the CEO said:
“This was a phenomenal quarter. We continue to see the astonishing impact of AI leverage. Our Rule of 40 score was 94%, once again obliterating the metric. We are guiding to the highest sequential quarterly revenue growth in our company’s history, representing 50% year-over-year growth.”
PLTR market cap can jump to $1 trillion
A common argument against the PLTR stock price is that it is highly overvalued. Besides, this is a nearly $400 billion company that will generate less than $5 billion in annual revenue. This figure gives it a price-to-sales ratio of 123 and a forward PE ratio of 277.
These are huge numbers considering that a company like NVIDIA has a forward PE ratio of 38 and a price-to-sales ratio of 28.
Still, proponents believe that the company’s valuation is justified, noting that just a handful of companies are using its software so far. With thousands of big public and private companies in the US alone, it has a large total addressable market.
Most importantly, the company is not as overvalued as its figures show. Software companies are normally valued using the rule-of-40 metric that looks at sales growth and its margins.
In PLTR’s case, the company’s revenue growth was 48%, while its income margin was 46%, giving it a multiple of 94%, much higher than 40. This means that its growth and margins are accelerating.
Palantir expects its annual revenue to be between $4.14 billion and $4.15 billion, representing a 45% annual growth rate. If its margin remains at 46%, it means that its multiple rule of 40 is over 90%, making it a bargain.
My base case is where the company’s market cap jumps to $1 trillion. It now has 2.36 billion outstanding shares, meaning that it needs to get to $423 to hit a $1 trillion.
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