Former NYSE trader bullish on Palantir despite valuation risk

The Street

Stephen 'Sarge' Guilfoyle joined TheStreet's Conway Gittens to discuss why he's bullish on Palantir.

Transcript

00:00 - Well, joining us is Sarge.

00:02 He's a contributor at The Street Pro.

00:04 I hear you come bearing gifts today

00:06 with your single best trade.

00:09 What is it?

00:10 - Well, I'll tell you what I'm willing to buy for myself,

00:13 for my children and my grandchildren

00:15 is Palantir Technologies.

00:17 PLTR for the folks at home.

00:20 - For the folks at home,

00:21 they may not know what that company does.

00:23 So tell us.

00:25 - It's kind of difficult to explain.

00:27 They're a big data software company

00:29 that's been really a contractor to the US government

00:33 from their beginnings.

00:34 Now they're spreading into the corporate side,

00:36 the commercial side.

00:37 Their customer count is growing like a weed.

00:40 I think it grew something like 69% year over year

00:42 last quarter.

00:43 Their revenues are growing a little more slowly.

00:45 My thinking is that the revenues are gonna catch up

00:48 to the customer account, not the other way around.

00:50 It might take a little while.

00:51 If you look at the stock's chart,

00:53 you might even see, for those of you

00:55 that can see these things, a descending triangle,

00:58 which would be a little bit bearish,

01:00 but that's okay because there's a gap down to about $19.

01:04 That's where the gap fills.

01:05 That's, you've seen me buying it,

01:07 'cause I tell you all you folks in my articles

01:08 when I'm buying it,

01:09 that's where I expect to buy to get aggressive.

01:11 I expect that gap to fill.

01:13 I expect to load up around 19

01:16 and maybe not take off,

01:17 but take off at a time my children

01:19 and my grandchildren are a little bit old.

01:20 - So why do you like this stock?

01:24 - It's because its demand for what it does,

01:29 I believe, is going to be inelastic.

01:31 All right, they provide security,

01:32 they provide surveillance,

01:34 they provide big data analysis

01:37 at a level that really only the CEO, Alex Karp,

01:41 can explain effectively.

01:43 I believe that they are well ahead

01:45 of other software providers,

01:47 of other big data providers on the AI side.

01:51 And as long as they can maintain that lead

01:53 or at least keep the pace up,

01:55 I mean, you all see what Dan Ives has said about this stock.

01:57 He's raved about this stock.

01:59 Not that Dan's always right,

02:00 but he's right a lot.

02:02 He's a five-star analyst at SIP Ranks for a good reason.

02:04 And I have a lot of the same feelings

02:06 for this stock as he does.

02:08 I have other picks too for you folks if you want.

02:10 I mean, there are three stocks I'm willing to buy.

02:12 - But let's stick with Palantir for right now,

02:14 because I know that you are bullish

02:18 on the company's cash flow, right?

02:20 - Yes.

02:21 - Explain to us why that is a buy for you.

02:26 - Well, the free cash flow for the firm last quarter,

02:29 I think it was 148, 149 million, something like that.

02:32 The balance sheet is clean as a whistle,

02:34 3.8 billion in cash, no debt.

02:37 The firm is set up where it can sustain,

02:40 even if it has to, losses for quite a while,

02:42 but it's been profitable now for,

02:44 I think GAAP profitable for six consecutive quarters.

02:47 Technically, it's eligible for the S&P 500.

02:50 I don't think they're about to shove it in there,

02:51 but technically they're eligible.

02:53 The cash flows are positive.

02:55 The firm is profitable.

02:57 Revenues are growing.

02:58 I think they're going to accelerate.

02:59 Maybe not right away, maybe not this year,

03:01 but I believe they're going to accelerate into the future.

03:05 Fundamentally, this is as sound a firm

03:09 at this size that I can find.

03:11 - So talk to me about some of the risks here.

03:13 I know they came out with their earnings in May.

03:16 They gave a full year revenue forecast

03:18 that was a little bit lighter

03:19 than what Wall Street was expecting.

03:21 I think the stock dropped like 15% right after that.

03:24 I took a look.

03:25 Deutsche Bank has a sell on it.

03:26 DA Davidson, neutral.

03:28 Citi Group, neutral.

03:29 HSBC has a hold.

03:30 RBC, underperformed.

03:32 So what is the risk to this stock?

03:35 - It's a valuation risk.

03:36 If the stock doesn't grow into its big boy close,

03:40 like I think it will, it's overvalued.

03:43 It's plain and simple.

03:44 So it's a valuation risk.

03:46 The sell side analysts have to acknowledge that,

03:49 and they are.

03:49 Well, some of them, I mentioned Dan Ives, he's not,

03:52 but some of them are.

03:54 But you have to buy these stocks

03:56 when you think, when you view the profitability,

04:01 the revenue growth as not at its peak,

04:04 but the peak is being priced in.

04:05 One of them has to move towards the other.

04:07 For our sake, for my kids' sake,

04:09 let's hope that I'm right and that the revenue growth

04:12 and the profitability grow into the larger size valuation.

04:15 - And what about the risk?

04:16 You mentioned that a huge chunk of its revenues

04:20 comes from government spending, right?

04:23 How much of a risk is that to this earnings potential?

04:28 - For the short term, it's crucial.

04:32 I mean, the US, like many developed economies,

04:36 is facing a fiscal crunch probably at some point.

04:39 But this firm has put itself into a position,

04:41 like where I said, where it's almost inelastic.

04:43 The Army and the Air Force use it for a number of things.

04:45 So I think its core US government business is stable.

04:49 It might only grow in the teens percentage-wise,

04:51 but it's the commercial side.

04:53 As corporations move more into the surveillance

04:56 and the analytical conclusions that they're looking for,

04:59 the outcomes, the solutions to their problems

05:01 that they're looking for,

05:02 that could only be solved through right now with speed,

05:05 through artificial intelligence and big data resolution.

05:09 So that's why I think this stock,

05:12 you can go out and buy Salesforce,

05:14 you can go buy Snowflake if you love big data,

05:16 and that's what you're interested in.

05:17 But if you're interested in a smaller company

05:19 that is doing the same thing,

05:21 probably a little ahead of those peers

05:23 in terms of technology and serving its country,

05:26 I don't have a problem with that.

05:28 - And what about that cashflow issue?

05:30 Are you bullish on the cashflow

05:31 because they can then use that money

05:33 to acquire other companies or to further expand the business?

05:38 So talk to me about that.

05:40 - If they need to, but I think it's,

05:42 they have not spent a lot of late on capital expenditures.

05:46 And this is a chance because they've built this up.

05:48 I don't expect the dividend anytime soon.

05:50 I certainly don't want them buying back stock,

05:52 but I do like the idea that maybe they can plow more money

05:54 into capital expenditures because you know

05:56 those bigger players that I just mentioned

05:58 have to catch up the pound to you.

06:00 So pound to you is gonna have to spend to stay ahead.

06:02 So they're gonna have to stay cozy

06:04 with the NVIDIAs of the world and the AMDs of the world,

06:06 because that's who's providing the brains

06:09 for artificial intelligence.

06:10 So there you have it, Sarge's top pick is Palantir,

06:14 and he's our contributor at The Street Pro.

06:17 [BLANK_AUDIO]

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