Palantir (NYSE: PLTR) is not precisely a “deep-value stock” relative to its price-to-earnings multiple but value is, as they say, where you find it. The stock is trading at a whopping high 165X its current-year earrings compared to much lower valuations for the broad S&P 500 and even competitors in the cloud services and security industry like Datadog (NASDAQ: DDOG). The salient point is the valuation falls to only 50X earnings relative to 2023 consensus estimates and the company could easily outperform based on some of the metrics within the FQ3 earnings report and signs within the industry, ie Datadog’s impressive 3rd quarter results. The takeaway is that Palantir’s shift toward commercial business is gaining traction and has opened the door to explosive growth and the leverage of scale.
Palantir: Mixed Results No Indication Of Future Success
Palantir reported a mixed quarter for Q3 but that is only in relation to the analyst's estimates. The company brought in $477.8 million in consolidated revenue for a gain of 21.9% over last year and a company record. The revenue also beat the Marketbeat.com consensus but there was some weakness on the bottom line. The gains in revenue were driven by US business, up 31%, with notable strength in the commercial segment. US Commercial revenue increased by 53% compared to a smaller 23% increase in the core government segment. Within that, the customer count grew by 66% across all segments, 11% sequentially, with commercial customers growing nearly 125%.
The bottom line results are mixed compared to the analyst's estimates with adjusted EPS of $0.01 missing by $0.01 but there is good news here as well. The operating loss improved by 1000 basis points as a percentage of revenue while the adjusted operating margin came in at 17%, cash flow margin at 10% and adjusted free cash flow margin at 8%. Turning to the guidance, the company is expecting to see these improvements continue into the end of the year and are reaffirming the full-year revenue guidance while increasing the adjusted income guidance to be in line with consensus.
Assuming the company is able to keep growing and leverage its growth the 2023 consensus figures for earnings could be too low. As it is now, the analysts are expecting to see YOY growth accelerate to nearly 25% in 2023, up 1% to 2% from 2022).
The Analysts Are Warming To Palantir
The analyst's activity in Palantir has been as mixed over the past year and there are two important takeaways. The first is that sentiment is warming from a weak Hold to a Firm Hold while the second is the price target is falling. The price target is down more than 50% YOY but it may start firming as well now the Q3 results are in. The current consensus is near $12.75 which implies about 60% of upside for the stock even with the big decline in expectations but the most recent activity has it trading in a range of $6 to $10. That range makes the stock fairly valued near $8 where it has been showing signs of a bottom.
The Technical Outlook: Palantir Hits A Floor
The price action in Palantir hit a floor near $7.50 and it looks like it could hold but there is some risk. The stock is moving lower in premarket action and could return to retest support or even set a new low before moving sideways or higher. While attractive, the market has yet to show real interest at these price levels so waiting for a clear signal may be the best bet. Longer-term, Palantir stock should move higher as it grows and improves profitability. 
