Shares of tech company Palantir Technologies (NYSE:PLTR), which is known for its data analytics and counterterrorism technology that many governments utilize, crashed more than 10% today as the business reported an earnings result that fell short of analyst expectations. The stock is back to trading near its 52-week lows.
But was the earnings miss really all that bad, and are these latest results a reason to sell the stock, or is this just an excellent buying opportunity for growth investors?
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Rising net losses look worse than they really are
In its fourth-quarter results, for the period ending Dec. 31, Palantir reported sales of $432.9 million which rose 34% year over year. Its net loss of $156.2 million also grew by more than 5%. While the company continues to make progress on its top line, the bottom line is likely more concerning for investors, and may be the reason for the bearishness as its adjusted per-share profit of $0.02 was below the $0.04 that analysts were looking for in Q4 (revenue, however, did outperform as analysts were projecting only $418 million for the top line).
Source: S&P Capital IQ. Blue = Palantir’s Total Revenue (quarterly); Purple = Palantir’s Net Income (quarterly)
Although at first glance, this trend looks troubling, Palantir’s business is on a positive track. Its operating loss of $58.9 million, for instance, was nearly one-third of the $156.6 million loss it reported in the prior-year period. The company’s operating expenses now account for 93% of revenue versus 127% a year ago.
While that’s still not great and it may be a long time before the company becomes profitable, the fundamentals are encouraging, and the business is in good shape to handle adversity.
‘Built for bad times’
On the company’s earnings call, CEO Alex Karp pointed to the $2.3 billion in cash and cash equivalents that Palantir has on its balance sheet plus no debt as an example of how it is, “built for bad times.” Not only does it have plenty of cash on its books, but the company also generated $333.9 million in cash from its day-to-day operating activities over the past 12 months.
However, despite the strong cash business that Palantir is, its stock has been struggling badly and enduring bad times of its own, not just on earnings day but over the course of the past six months:
The decline is not all that dissimilar with the freefall that the ARK Innovation ETF has been on (Palantir is among its top 15 holdings). The bearishness in disruptive growth stocks like Palantir hasn’t been anything new of late and an earnings miss just adds fuel to the fire.
Is now a golden opportunity to buy the stock?
You have to go back to about November 2020 for the last time that Palantir’s stock was trading much lower than where it is today. And since then, the business has grown, acquired more customers, and become a much more formidable investment. The company reaffirmed its annual revenue growth target of at least 30% until 2025 today, suggesting that things are still going according to plan for the business.
While the bears may be out in full force because the company missed expectations in Q4, that shouldn’t detract from Palantir’s improving fundamentals and attractive long-term growth prospects. If you are willing to buy and hold for at least the next three years, buying Palantir’s stock could be a move you thank yourself for in the future.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.