Does Palantir Technologies Have a “Special Sauce” to Support Valuation?
In past columns about Palantir stock, I’ve noted in general terms that Palantir Technologies (NYSE:PLTR) actually has many competitors. More specifically, I’ve noted that there are multiple government-focused systems integrators, which, like the Denver-based firm, help government agencies develop conclusions from data. And I’ve also pointed out that multiple tech companies also provide data-analysis tools.
In today’s piece, I want to provide more detailed information about the offerings of several of those rivals and see if it’s possible to determine what, if any, competitive advantages Palantir has over them.
Maybe Not So Special
Before examining Palantir’s competition, however, I want to share an important anecdote that I learned from reading a recent Seeking Alpha column. Specifically, in 2017, Home Depot (NYSE:HD) stopped utilizing Palantir’s products, according to CNBC, which cited BuzzFeed. The retail giant decided to end the three-year relationship because Palantir’s offerings “weren’t worth the price,” according to the cable business news channel.
Even more ominously for Palantir and PLTR stock, Home Depot reportedly decided that it could, by itself, obtain many of the same benefits that the data- analysis company was offering. So the idea, promoted by Palantir and those who are bullish on its shares — that the company provides a tremendous level of unique insights that no one else could possibly offer — may not be totally accurate.
With that in mind, let’s look at the data-analysis products and services offered by a few of Palantir’s competitors.
Government-Focused Systems Integrators
SAIC (NYSE:SAIC) says that it utilizes “actionable analytics [that] combine human ingenuity and machine power to produce insights often in the blink of any eye.” The company adds that it utilizes various “processes, methodologies, and tools, including machine learning algorithms,” to interpret data. Moreover, using artificial intelligence, its MetaSift product produces “deeper intelligence connections.” And the firm claims to “provide platforms with multiple source and tool integrations.”
For its part, Booz Allen Hamilton (NYSE:BAH) reports that it provides its “clients with a clear and effective way to understand their data,” adding that it utilizes “the latest data science methodology and technology to create new analytic tools, products, and prototypes that support scientific analysis, data visualization, and collaboration. ”
Palantir states that its Gotham product, which is geared for government agencies, “integrates and transforms data, regardless of type or volume, into a single, coherent data asset” that is “human centric.” In other words, Gotham makes it easy for people to analyze data absent specialized training. Palantir’s product also reportedly enables employees to “explore divergent hypotheses, surface unknown connections and patterns, and share insights with their colleagues. ”
It’s clear that that Palantir, Booz Allen, and SAIC all provide data-analysis tools. While Booz Allen emphasizes clarity on its website and SAIC touts the integration of data from different sources, Palantir emphasizes both the ease of use of Gotham and its data-integration capabilities.
Still, that doesn’t mean the offerings from Booz Allen and SAIC are not both easy to use and well integrated or that Palantir’s product is superior to the other two companies’ offerings.
Splunk (NASDAQ:SPLK) reports that its products offer “the real-time insights needed to boost productivity, security, profitability and competitiveness.” Its enterprise product reportedly integrates data from “all” sources and utilizes AI to interpret data. Splunk says that its IT Service Intelligence offering can be used to “simplify operations,” and the company has products that are geared to the public sector.
Meanwhile, Tableau, which was acquired by Salesforce (NYSE:CRM) in 2019, claims to offer “analytics people love to use,” adding that it “see and understand data.” According to the company, it provides “the world’s broadest, deepest analytics platform.”
Geared for private companies, Palantir’s Foundry product “enables users with varying technical ability and deep subject matter expertise to work meaningfully with data.” The company says that Foundry allows data to be transformed into “any shape.” Foundry also has collaboration and security tools, but, in 2021, I’m sure that’s true of nearly every competing product as well.
The Bottom Line on Palantir Stock
Fundamentally, Palantir’s products are data-analysis tools. Although they may have certain advantages over competing systems, there’s no evidence that the company’s offerings are in any way meaningfully superior to the many other available data-analysis products.
As a result, I believe that the extremely high valuation of Palantir stock — its trailing price-to-sales ratio is 43 — may not be justified, and I recommend that investors sell the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.