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Hey everyone! ✋ 

Palantir is expected to report its second-quarter financial results for the period ending June 30th on Monday, August 5th. I'll discuss what investors should watch for when Palantir releases its quarterly earnings update and answer whether investors should buy Palantir stock before the company's earnings announcement. There's much to cover, so let's get into the details.

The first thing we are looking for from Palantir is a continuation of its profitability streak. Palantir reported a net income of $106 million and a net profit margin of 17%, marking six consecutive quarters of profitability for the company after decades of net losses. I want to see Palantir maintain this profitability.

Next, we want to see continued revenue growth from Palantir. The company reported 21% year-over-year revenue growth to $634 million. If Palantir reports revenue at or above 21% in the upcoming quarter, that would be very bullish for Palantir stock investors, especially if that acceleration in revenue growth comes with increased profitability.

Delving deeper into sales, the category in which we want to see sales growth from Palantir is commercial revenue. We all know Palantir's success with governments. However, Palantir has had more difficulty selling its services to businesses, not because Palantir's services aren't excellent—they are best-in-class—but because fewer businesses can afford them. I want to see continued traction in this category.

In the latest quarter, Palantir made great progress. U.S. commercial revenue grew 40% year over year and 14% from the previous quarter, while the U.S. customer count grew 69% year-over-year. However, a company generating billions in annual revenue only has 262 customers. This shows Palantir's cost and why only 262 customers or businesses can afford their services.

To progress on this front, Palantir has been working diligently to lower its service cost, making itself more affordable to more businesses. Palantir is also implementing boot camps where it goes into businesses and demonstrates its capabilities, increasing affordability by showcasing its value. This strategy has been working well for Palantir, as demonstrated by increasing commercial customer count, revenue, and U.S. commercial remaining deal value, which increased 74% year-over-year. I want to see this category continue to expand because it represents a much larger opportunity for Palantir compared to government business, as there are only a limited number of governments worldwide.

One area where Palantir finds great opportunities is within the U.S. government and military, where spending has traditionally been heavily weighted toward hardware. Palantir has been benefiting from the increase in software spending within the military, and they expect the percentage of software spending to increase as a proportion of overall spending, which will be a tailwind for the company.

Palantir has generated significant cash flow from operations, with $130 million in the latest quarter, representing a 20% margin. This margin has been increasing over the last several quarters and years. The continuous increase in cash flow, coupled with its already robust balance sheet, has led the company to have a cash hoard of close to $4 billion with roughly zero debt.

Investors want Palantir to start utilizing this balance sheet. This could mean more share buybacks to reduce shareholder dilution caused by stock-based compensation. Alternatively, I would prefer Palantir use this cash to offer more favorable terms to business customers, such as flexible financing options. This would allow Palantir to increase sales and inroads in the commercial business category.

To answer whether investors should buy Palantir stock before earnings, Palantir stock is trading at a forward price-to-earnings ratio of 68, which is more expensive. While the business is in better shape than a year ago, it's still costly. Therefore, we recommend that investors wait until after earnings to consider purchasing Palantir stock.

The stock is volatile, and the risk of a significant decrease following a disappointing earnings release is elevated. I would suggest waiting, digesting the earnings release, and then making a decision for Palantir stock investors.

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Meanwhile, Citi expressed caution about Palantir. 👇️ 

While expressing caution regarding the software industry, Citi believes that Palantir will exceed earnings expectations. The bank anticipates strong performance from Palantir's commercial arm despite some "government uncertainty." This assessment follows Citi's recent visit to Palantir's headquarters, where management expressed confidence in the long-term growth of government contract revenue, even acknowledging some short-term challenges.

Positive Outlook Leads to Price Target Increase

Citi's positive outlook on Palantir, including the potential momentum of its AI Platform (AIP), has led the bank to raise its price target for PLTR stock to $28 from $25.

Q2 Expectations and Past Performance

Analysts expect Palantir to report a 22.34% year-over-year revenue growth to $652 million for the second quarter. Adjusted gross profit is projected to increase by 26.18% to $538 million, representing the largest year-over-year growth since Q2 2022. Earnings per share (EPS) are estimated to be 3 cents, compared to 1 cent in the previous year. Palantir has a history of exceeding or meeting EPS estimates in the past three quarters.

Jefferies Raises Price Target but Notes High Valuation

Jefferies has also increased its price target for PLTR stock to $28 from $24 while maintaining a "hold" rating. Analyst Brent Thill acknowledges Palantir's "rare blended AI apps/infra asset with NT rev momentum" but also points out the company's high valuation at 19x expected sales for the cyclical year 2025.

Market Reaction and Analyst Consensus

Despite the positive outlook from analysts, PLTR stock experienced a slight dip last June 30th. The average analyst price target for the stock is $23.07, ranging from $9 to $35.

The upcoming earnings report from Palantir promises to be a pivotal moment for PLTR stock. With high expectations and a recent dip in share price, investors are closely watching for insights into the company's financial performance, commercial progress, and prospects in the evolving AI landscape.

That’s it for this episode!

Is this a buying opportunity or a time to sell? Share your thoughts in the comment section below.

Remember: Investing is a journey, not a destination. It's about making informed decisions, managing risk, and staying committed to your long-term goals. So, take the time to research, experiment, and find the perfect recipe for your balanced portfolio.

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Cheers to wealth, wisdom, and a dash of madness!

The Investing Wise Academy Team

Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor before making any investment decisions.

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