Before we discuss the opportunity in Palantir (NYSE:PLTR) stock, we should spend a few minutes describing the landscape. The macroeconomic conditions are pretty bad, yet somehow the equity indices won’t stop making highs. The small caps exploded up 4% earlier this week in spite of a lot of negative headline littering the news feeds. That said, Palantir stock closed weak on Wednesday and fell 4% on the day.
In spite of the bad macro, there is a ton of stimulus flooding the economy. Most recently the U.S. authorized yet another round of assistance to offset the effects of the novel coronavirus pandemic. This will prop up stocks and cause more rallies in the indices even if the bad news won’t stop coming.
The safety net that the government has chosen to offset the lockdowns is huge. The money is flowing from two sides, and the U.S. Federal Reserve has its foot on the monetary fund pedal. And the White House is throwing the proverbial cash out of helicopters.
In turn, all this money is fattening up the country’s profits and loss statements and more of it soon. It’s a simple concept that most bears are missing. Shorting the price action because the typical fundamentals are wrong is silly. I acknowledge that this has the potential to end badly — but for now, I ride the wave.
They say to not fight the Fed, and this is the most aggressive Fed ever! They also say to not fight the tape, and this is the hottest tape ever!
Catch the Falling Knife, Especially the Good Ones
Knowing we have a bullish market then, it is good to catch falling knives that are worthy. Palantir stock is one of them, and that’s the proposal today.
It came to market not through a typical initial public offering (IPO), so there might be some mystique around that aspect. Usually we have a clear date for lockup expirations, and traders can plan around that. In this case, I’ve read several conflicting scenarios so I choose to ignore all of them. The best course of action is to trade the fundamentals that they have and the actual charts at face value.
The reality is that Palantir has been in business for 17 years. This is definitely not an electric vehicle (EV) SPAC that has no earnings. They have two sides to their business — one for the government and another commercial — and both revenue streams are healthy. We all know how lucrative selling stuff to the government can be. Although it may not be a $10,00 toilet seat that they are selling, I am sure the U.S. pays a pretty penny for their services.
Overall, the core idea of what they do is empower users to make better and faster decisions on the fly. I can even label it as artificial intelligence (AI) because it’s pretty close in spirit. Anyone who has owned or managed a decent size business knows how hard it is to collect data. Usually there are several internal systems that don’t talk to each other. Collecting the data is tedious and using it inefficient. Having a user friendly interface that aggregates it all is priceless.
Managers will do what ever it takes to get solutions like this and keep them. I know I would have back in the day. These are functions that may seem frivolous now, but they are fast becoming necessities. Software-as-a-Service (SaaS) is now what all companies seek. This is a concept that Salesforce.com (NYSE:CRM) pioneered, and now everyone else is perfecting. Whether Palantir’s Gotham, Foundry, or Apollo, the demand for their services has a long ramp ahead. It will take decades to get the world up to speed.
Therefore, even if competition comes, there will be a ton of elbow room for all to do well.
Palantir Stock Has Incredible Fans, Don’t Bet Against Them
As a whole, PLTR stock is still young in its public life, so judging its fundamental metrics is tricky. I’d like to admit that it’s expensive from the tradition sense and move past it.
That said, cheap isn’t a quality I seek in a young, aggressive company. This is a growth phase, and investors should give it a pass on profitability. The more important part is to grow and fast, and this usually costs money. If Amazon (NASDAQ:AMZN) had succumbed to the pressures of cutting spending we probably would not have gotten Amazon Web Services (AWS).
Technically, this is an exciting stock. I’ve recently had my fair share of public discussions, mainly through the comments of my videos on it. The dedication that the fans have to this stock is amazing. This speaks well to what they see coming from the company and its management.
So far, I am impressed too and I have no reason to doubt them. Palantir stock is now testing the lower limits of the consolidation period, and usually those are good spots to add shares. There is support here and more of it below through $21 per share. Thus, I am confident that owning them now for the long term is not going to end in tears.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.