Palantir Shows Strong Growth Despite High Expectations

Palantir (NASDAQ: PLTR) seems to be thriving, managing to exceed high expectations consistently. In its recent second-quarter results, the company surpassed previous predictions and is now targeting what would be its biggest quarterly sales growth ever for the third quarter, aiming for a 50% increase compared to the previous year.

Concerns regarding Palantir’s considerable valuation appear to have minimal impact on its performance, as the stock continues an upward trend. Year-to-date, it has surged by 165%, and over the past year, it has skyrocketed by more than 380%.

The third-quarter results are anticipated to be released after the market closes on Monday, and many investors are curious to see if the company can once again exceed consensus estimates.

However, one investor using the alias Tunga Capital expresses a different perspective. They suggest that the focus should shift from short-term gains to the long-term potential of returns.

“The key question is how many years of returns you’re willing to sacrifice for future compounding,” Tunga remarked.

Tunga believes that the current valuation implies a wait of at least four years before investors might start seeing significant returns. The situation is complicated further by Palantir’s expanding base, which makes achieving substantial growth rates increasingly challenging as revenues grow.

That said, Tunga is not questioning Palantir’s business model, which is characterized by “innovative technology,” a strong competitive advantage, and “marginal growth.” These aspects are well-acknowledged, as is Palantir’s ability to generate revenue.

According to Tunga, “The bullish argument must not only be correct; it needs to be exceptionally strong to deliver growth exceeding very high expectations.”

Furthermore, they assert that for PLTR to sustain its growth trajectory, it must establish that a 50% revenue growth rate is the new standard. Tunga predicts that even anticipated growth of 30% to 40% might not suffice and could result in significant declines.

“Considering how hard it will be to maintain accelerated growth, I plan to take a cautious position before the Q3 earnings,” Tunga Capital concluded.

Looking more broadly, Wall Street’s perspective seems somewhat tempered. The consensus appears to lean towards caution, with 13 holdings and 2 sells outweighing 4 buys, leading to a neutral consensus rating for PLTR. Moreover, the average price target over the next 12 months is set at $158.41, indicating a potential drop of up to 21% from current levels.