Palantir: My Top Stock For 2023 (NYSE:PLTR)

Palantir (NYSE:PLTR) may become my top 2023 individual stock position. But why is that shocking? Palantir is a unique company that is significantly undervalued relative to its future revenue growth prospects, profitability potential, and earnings ability. Palantir is an exceptional company because it possesses nearly limitless growth potential in the private sector. Additionally, the company remains a top government contractor, enabling strong revenue streams from lucrative government contracts. Nevertheless, the company’s goldmine is in the private sector, where Palantir’s solutions continue attracting more customers.

Q3 Highlights – U.S. Commercial Customer Count 124% YoY Increase

Palantir’s most recent quarter shows the company’s financials during challenging economic times, yet Palantir’s financials are rock solid here. We see outstanding growth in all key business areas. Moreover, we’re seeing increasing profitability on an adjusted basis. As Palantir continues expanding operations and increasing revenues, the company should become increasingly profitable, leading to a much higher stock price in the coming years.

Alex Karp’s Message from Davos

Alex Karp remained very upbeat about his company’s future business prospects. A primary point was the company’s ability to maintain growth in its government business while expanding substantially on the commercial side. Another vocal point was Ukraine. Karp stated that he did not think the war in Ukraine would end anytime soon, but that Palantir’s superior technology and “heroes on the ground” should eventually enable Ukraine to win the war against Russia.

My takeaway was that Palantir’s stock got extremely overbought when shares skyrocketed to $40. It is getting ridiculously oversold and undervalued, with shares drifting toward $5. Moreover, Karp is more than just chiming in on Ukraine. He’s illustrating that Palantir’s solutions have been instrumental in Ukraine and should continue to help Ukraine battle for its freedom against Russia. Furthermore, having Palantir on the front lines in Ukraine is essentially the same as having the company working with NATO.

As the War in Ukraine drags on, NATO will likely continue its involvement, leading to more opportunities for Palantir in the long run. Also, I’m not looking at Palantir as a war profiteer but as a company that helps with global injustices. Additionally, Palantir’s involvement in Ukraine should help the company achieve its growth objectives in other business areas (commercial as well).

The Technical Image – Around A Significant Low

Palantir IPOed around $10 less than two and a half years ago. Therefore, while the company has been operating for many years, we are looking at a relatively new public Palantir. Thus, the market needs time to adjust to Palantir and its valuation, and in time it will. Palantir is well below its IPO price, only about $7. Moreover, we’ve seen Palantir in the $6-$7 range, and the stock may even dip to around $5-$6 for a short time.

Regardless, the rebound should be remarkable long term. As Alex Karp said, the stock price was too high, around $40, but it may be getting abnormally low in the $5-$7 range. The bottom is close if it has not been hit already, and this looks like an excellent entry point to dollar cost average around the $5-$7 range. Long-term investors should get rewarded as the market starts valuing Palantir more appropriately in the coming years.

Palantir’s Remarkable Profitability Potential

One factor that often gets overlooked is how exceptionally profitable Palantir is. Palantir’s TTM gross revenue is approximately $1.83 billion, and its gross profit is roughly $1.44 billion for the same time frame. This dynamic illustrates a relatively high gross margin of about 79% for Palantir’s last 12 months of operations.

Palantir Gross Profit

We see that YoY gross margin surged by 62% last year. This year’s revenue estimate is $1.9 billion, implying a gross profit of about $1.52 billion in 2022. Additionally, next year’s revenue estimate of approximately $2.3 billion means that Palantir’s gross profit would come in at around $1.85 billion. Despite the transitory slowdown, Palantir should continue growing revenues and expanding profits.

Are Analysts Too Pessimistic Now?

Analysts have slashed Palantir’s revenue growth estimates, leading to lower profitability projections. Revenue and earnings estimates have declined notably due to the downturn and may be overly pessimistic now. Therefore, Palantir could surprise the market by delivering higher revenues and better than anticipated EPS as the recovery strengthens in future quarters.

Revenue Estimates Underestimated

The average revenue estimate is down to just $2.3 billion this year and $2.85 billion in 2024. These figures represent YoY growth of approximately 21% this year and 24% in 2024. Due to the transitory slowdown, Palantir’s revenue growth adjusted lower from about 30%. However, the revised estimates may need to be more balanced, and I expect Palantir can provide 25% or higher revenue growth this year and 28% or more in 2024. After 2024, Palantir may continue expanding revenues by 20-30% through 2030.

EPS Growth Should Surprise Higher

We know that Palantir has the potential to be exceptionally profitable. The company has a remarkably high gross margin of approximately 80%. Moreover, operating expenses should become less significant as Palantir’s revenues continue expanding. Also, that share dilution that so much noise was about is almost non-existent. The company’s share count has stabilized around 2-2.1 billion, and future stock-based compensation should result in minimal dilution.

EPS Estimates – Too Low Now

Next year’s (2024) consensus EPS estimate is 22 cents. This estimate puts Palantir’s forward P/E ratio at just 32. However, if the company can earn around 30 cents, its forward P/E ratio is about 23 now. Moreover, Palantir should become increasingly profitable as it advances. Estimates illustrate that we could see a significant jump in EPS growth of around 70% in 2025. After that, we could see sustainable YoY EPS growth of 30-50% through 2030.

Here’s what Palantir’s financials could look like as we advance:

Year	2023	2024	2025	2026	2027	2028	2029
Revenue Bs	$2.45	$3.2	$4.16	$5.37	$6.87	$8.72	$10.9
Revenue growth	29%	30%	30%	29%	28%	27%	25%
EPS	$.20	$.29	$.44	$.65	$.94	$1.31	1.77
EPS growth	300%	45%	50%	47%	45%	40%	35%
Forward P/E	24	26	27	29	30	28	25
Stock price	$7	$12	$18	$27	$40	$50	$65

Click to enlarge

Source: The Financial Prophet

The Bottom Line – Palantir Has Substantial Upside Ahead

I am using relatively modest forward P/E ratio projections, as P/E ratios could rise well above 30 in an encouraging, better sentiment environment. Also, my revenue growth and EPS expansion align with higher-end estimates. The estimates are modest, provided Palantir’s incredible growth prospects and enormous profitability potential. Therefore, we could see Palantir outperform my estimates, enabling its stock price to appreciate approximately tenfold before the end of this decade.

Risks to Palantir

Despite my bullish outlook for Palantir, market participants should consider several potential risks associated with this investment. The company’s earnings are minimal and may not increase as much as I envision. Moreover, if the company’s growth picture were to turn less bullish, the stock could head lower. Also, if Palantir lost favor with the government or had a data breach, the stock could experience a notable decline. We could see Palantir down around $5 if the bear market continues to body slam stocks. So, please think about these and other risks carefully before investing in Palantir.