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Palantir Stock Undervalued Despite Q4 Earnings Miss

We think investors are missing Palantir's long-term potential to be an essential component of data operations.

We are maintaining our $31 fair value estimate for narrow-moat Palantir Technologies PLTR after its fourth-quarter results exceeded our expectations for revenue growth but lagged our anticipation for earnings as the firm aggressively ramps up its headcount. Palantir's shares being punished for missing FactSet consensus earnings expectations in the quarter, and heightened investments expected in 2022, create a solid buying opportunity for long-term investors. We think the sell-off is near-term reactionary and is missing the long-term vision of Palantir becoming an essential component of data operations for commercial and government entities. Palantir proliferating its salesforce is crucial to keep the strong momentum in commercial customer adds and driving profound retention metrics once landing a client, in our view. We think its software creating insight from deluges of data becomes invaluable to customers. The reaffirmation of expecting at least 30% annual sales growth through 2025 with a keen focus on expanding margin with scale provides us with confidence that its prospects are still in their early stages. Compared with the prior year, revenue grew 34% in the quarter, led by commercial growing by 47% and government expanding by 26%. The bulk of Palantir's growth comes from existing customers, and we believe its trailing 12-month 131% net dollar retention shows its ability to land then expand spending from organizations. With Palantir's software becoming essential once embraced, we think growing the customer base is key for the long term. The company added 34 new commercial customers in the fourth quarter and ended 2021 with 147 commercial clients and 90 government customers. We believe Palantir's more nascent software module approach, making its products easily consumable and addressing specific use cases, is helping drive customer engagements, and the company is acting wisely in hiring aggressively to keep landing clients and diversify its revenue streams.

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