Emotions cloud investors’ judgment of Palantir

Investors are often advised to put their emotions aside when buying or selling stocks. However, I believe that the problem with Palantir Technologies (NYSE:PLTR) is that too many investors are trapped in their ‘feelings’. That’s the only explanation I can come up with for the rollercoaster ride that has been PLTR stocks since direct listing.

A close up shot of a hand on a screen with the Palantir (PLTR) logo.

Source: Ascannio / Shutterstock.com

However, emotional investing creates blind spots. In Palantir’s case, both bullish and bearish investors need to be sure they see the whole picture when judging PLTR stocks. At this stage, investors should step back to see that both sides of the argument have points in their favor.

PLTR stock: not an easy-to-define company

Part of the problem for Palantir is the average investor’s understanding of his company. For those who don’t live in the world of “big data” (including yours), it can be hard to get someone to explain Palantir to you like you’re five.

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As a result, investors pay more attention to who the company does business with, and the biggest “who” for Palantir is the federal government.

Now I’ve made it clear in previous articles that the company is just as likely to take money from Republican and Democratic governments, and it has been. But politics makes strange bedfellows. As Josh Enomoto pointed out, the company’s agnostic approach is going away room for criticism on both sides of the ideological spectrum.

What the bulls miss

Palantir bulls are overwhelmingly committed to the company’s growth story. However, this approach ignores some red flags. For starters, the cost of acquiring new customers is high. Vandita Jadeja wrote that Palantir made great progress on this front at a cost of $169 million.

a lot of them new customers exist in government space. To be fair, these customers are often sticky. And if you take your emotions out of the investment process, it doesn’t really matter where the income comes from. However, it still serves as a reminder that while Palantir’s valuation suggests it has already arrived, its customer base presents a different reality.

It’s also okay to shiver and shiver at the amount paid in stock compensation. Will Ashworth noted that Palantir’s CEO and co-founder Alex Karp… paid $1.1 billion in cash and stock compensation in 2020. That was almost 5% of the company’s annual turnover.

What the bears miss

There are two sides to every story, and the bears also overlook some compelling arguments. Can I interest someone in stocks of companies with positive – and growing – free cash flow (FCF)? If so, you should take a closer look at PLTR stock. You should also read what Mark Hake has to say about his forecast for the FCF. from the company.

If FCF isn’t enough for you, what about adjusted gross margins? In the third quarter of 2020, Palantir’s adjusted gross margin was 81%. In the first quarter of this year, it went up to 83%. As I mentioned before, it costs Palantir money to add new customers. But with margins like that, the company has some decent pricing power to bring to the table.

Plus, the bears ignore the fact that Palantir is, as Luke Lango writes, “the most technologically advanced data analytics platform provider in the world.” This would justify the company’s premium valuation, as it is only breaching the surface of its potential market.

PLTR stock need to show me more

If you are lucky enough to write about a series of stocks, you will encounter some hits and misses. At Palantir I chose to play it in the middle. And while that’s not a popular place to be in our polarized culture, it’s served me well.

I tend to fall into the bullish camp, but I admit I want to see more before stepping into the valuation of the company. I haven’t owned any PLTR stock yet and I’m probably waiting for some clarity on the company’s revenue growth.

That’s not an emotional decision, but a rational one – for now.

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At the date of publication, Chris Markoch had no (direct or indirect) positions in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication Guidelines.

Chris Markoch is a freelance financial copywriter who has been serving the market for over five years. He has been writing for InvestorPlace since 2019.

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