What’s So Bad About Palantir’s Q1 Earnings Report?

Since coming public in October of last year, shares of Palantir Technologies Inc. (NYSE: PLTR | PLTR Price Prediction) have nearly doubled in value, closing up nearly 95% on Monday afternoon. The stock tumbled by more than 10% in Tuesday’s premarket trading, following the company’s first-quarter earnings report.

The company reported adjusted, diluted earnings per share (EPS) of $0.04 on revenue of $341.23 million. EPS came in at the consensus estimate and revenue beat expectations by $9 million. Why the plunging share price?

Investor reaction may be due in part to overall disenchantment with the tech sector. The Nasdaq traded down about 1.6% in Tuesday’s premarket. After a booming 2020, tech stocks are up just 3.8% so far in 2021, about 67% below the S&P 500 index.

Another reason for the drop may be investors’ belief that Palantir stock, currently trading at 115.6 times expected fiscal 2021 EPS, is overvalued. The stock also trades at a multiple of 24.3 measured on enterprise value-to-expected 2021 revenue. That’s more than three times the software industry average of just over seven times and nearly five times the tech sector’s multiple of 5.1 times.

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In its outlook for the second quarter, Palantir said it expects revenue to rise by 43% year over year to $360 million, with an operating margin of 23%. For the full year, Palantir expects adjusted free cash flow of more than $150 million. Over a longer term, the company expects annual revenue growth of 30% or more for 2021 through 2025.

Sequentially, revenue rose by about 5.9% and adjusted EPS slipped by two cents per share. On a GAAP basis, the loss per share improved from eight cents to seven cents. That hardly fits the profile of a fast-growth company, and that’s probably what was weighing on the stock Tuesday.

Consensus estimates for the June quarter call for adjusted EPS of $0.03 on sales of $344.31 million. For the full year, analysts are looking for EPS of $0.16 on sales of $1.47 billion. Those estimates represent a pretty low bar.

Palantir’s stock traded at $17.85 just after Tuesday’s open, down about 3.3% compared with Monday’s closing price of $18.47. The stock’s post-IPO range is $8.90 to $45.00, and the consensus price target on the shares is $26.33. The average daily trading volume is 81.2 million shares.

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