Stock of the week - Palantir Technologies (15.02.2022)

• Palantir Technologies dropped over 70% from early-2021 all-time highs

• Company signed numerous deals in late-2021 and early-2022

• Q4 2021 earnings release this Thursday

• Focus on performance of Commercial segment

• Investors will look for hints on cloud expansion

• Stock trades in a triangle pattern

Palantir Technologies (PLTR.US) was among investors' favourites at the turn of 2020 and 2021. Stock experienced a massive rally and saw its share price jump over 300% over the 3-month period. However, the later part of 2021 didn't turn out to be as good for the stock. Shares of Palantir trade over 70% below its early-2021 record high. Company is set to report Q4 earnings this Thursday but will the report help snap a losing streak?

Fall from grace

Palantir Technologies , a US company focusing on big data analytics, has fallen out of investors' grace last year. Stock reached an all-time high in early-2021 following a 300% 3-month rally but weakness arrived later on. Stock dropped 50% over the next 2-months and after a brief sideways move, drop was resumed in late-2021. Stock is currently trading around 70% below all-time high from early-2021. Situation stabilised in late-January 2022 and the stock has been moving more or less sideways for the past 4 weeks. However, even after such a steep drop that company continues to trade at a rich valuation. Price-to-sales ratio sits above 17 while both price-to-cash-flow and price-to-free-cash-flow sit above 100. Price-to-earnings ratio cannot be calculated as the company did not report 4 quarters of profits yet.

New deals in late-2021 and early-2022

While the performance of Palantir's share price may not look too encouraging, the company has been very active in recent months and signed numerous commercial partnerships. Among those one can find deals with Ferrari, Hyundai Heavy Industries or Merck. On top of that, government contracts kept pouring in with the company announcing new deals with US Space System Command, US Army Intelligence of National Institute of Health.

Government contracts continue to generate the majority of sales for Palantir. Government segment accounted for 59.3% of sales in Q4 2020 - Q3 2021 period. However, the third quarter of 2021 saw a big jump in Commercial segment revenue with its share in total revenue jumping to 44.5%. Unlike many companies popular among investors, Palantir has begun to turn in profits.

Q4 results preview

Palantir Technologies will report on Thursday, February 17 before the opening of the Wall Street session. Market expects the company to report revenue of $418 million, up 30% YoY,  and adjusted EPS at $0.034, down from $0.06 in Q4 2020. EBITDA is seen coming in at $97.5 million, up from -$100.9 million in Q4 2020, while net income is projected at $85.2 million, down from $112.4 million a year ago.

Palantir's growth is to a huge extent driven by government contracts. Analysts believe that the company needs to boost its Commercial segment if it wants to maintain a high growth rate. Having said that, attention will be on how the Commercial sector performed. However, given a lot of new deals announced in late-Q4, the segment is expected to show solid growth. Investors will also look for hints whether the company plans to expand to a cloud platform what may be needed to scale up the business over the long-term.

A look at the market

As we have already mentioned, share price of Palantir managed to halt recent downward move and has been trading sideways as of late. Taking a look at the stock at the H4 interval we can see that it is actually trading in a triangle pattern with 50-EMA acting as a short-term resistance (blue line). The upcoming earnings release may be a trigger for a move that will push the price out of the pattern. An upside breakout could be followed by an upward move to $16.66 area while downside breakout could see price drop to as low as $10.24.

Source: xStation5