Why Did Palantir Technologies Stock Drop Again?
Key Points
Oppenheimer and Baird both reiterated buy ratings on Palantir this week.
On Tuesday, a third analyst warned of weak commercial sales -- sparking a selloff.
Palantir Technologies (NASDAQ: PLTR) stock closed down 6.1% Tuesday after Cleveland Research hinted at weak commercial spending among the company's commercial partners, as StreetInsider.com reports.
But here's the thing: Not everyone agrees that Palantir is heading for disappointment. Over the past two days, two other analysts have come out in support of Palantir stock ahead of its Q2 earnings release on Aug. 3.
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Image source: Palantir.
Oppenheimer loves Palantir
On Monday, Oppenheimer analyst Param Singh reiterated his "outperform" rating and $200 price target on Palantir. Revenue could grow 85% year over year, says Singh, beating consensus forecasts for 80% growth.
Singh disputes Cleveland's report, arguing that Palantir's Q2 commercial revenue growth will be 135% year over year, even faster than U.S. government sales, which should grow 80% or better -- primarily due to increased defense spending.
Baird loves Palantir, too
One day later, Baird analyst William Power likewise reiterated an outperform rating and $200 price target. Power agrees with Singh that both commercial and government revenue growth will be strong for Palantir. Even better, Power adds that Palantir is on track to generate potentially as much as $8 billion in positive free cash flow -- although for now, he's forecasting only a more conservative $6.7 billion.
What it means for investors
To put these numbers in context, Palantir generated just $2.1 billion in free cash flow last year. Most analysts think that number will double in 2026 (S&P Global Market Intelligence estimates $4.3 billion), then grow another 50% or so in 2027 ($6.4 billion).
On a $315 billion market capitalization, that's still a nearly 50x forward FCF valuation on the stock, which sounds like a lot. For a company growing FCF 100% one year, however, and 50% the next, it may actually be a fair price to pay for Palantir.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.