Sizing Up The Opportunity In Palantir (NYSE: PLTR) Shares of Palantir (NYSE: PLTR) look set to soon hit their highest levels since February as investors and Wall Street alike digest the company's recen...

Shares of Palantir (NYSE: PLTR) look set to soon hit their highest levels since February as investors and Wall Street alike digest the company's recent earnings report. They were very much eagerly awaited as the Denver headquartered company, which specializes in big data analytics, only IPO'd last September and it's been a bit of a rollercoaster since.

They hit the ground running almost immediately and had run up almost 400% by the end of January. But since higher than expected inflation readings became the norm and investors shifted focus away from growth stocks, Palantir's shares have been under pressure. They were down as much as 60% from their January highs at the start of summer, but have managed to consolidate since then along some solid support lines. Needless to say that their Q2 earnings, released late last week, will play a big role in how the stock performs in the second half of the year.

Solid Revenue Growth

At first glance, there was a lot to like, both for existing investors and those of us considering a position. Topline revenue was up 49% on the year and well ahead of what analysts had been expecting, while EPS was also ahead of the consensus. They managed to print a black figure for the non-GAAP version of the latter but it will be at least another 3 months before they can definitively say they've turned an honest profit.

Other key highlights from the report included adjusted operating margin for the quarter which at 31% was well ahead of the previously guided 23%. US commercial revenue jumped 90% year-over-year, driven in large part by the increase in number of new customers who came onboard for contracts of $1 million or above. Looking ahead, the company expects to hit $385 million in revenue in Q3, which was well ahead of the $380.13 million analysts had been expecting.

This upside surprise, along with the rest of the report, and the fact that management is expecting revenue growth to stay above 30% until at least 2025, helped to move Palantir shares up as much as 15% in the following session. Though they've given back half of that move since there can be no doubt that Q2's numbers have strengthened the overall bull case.

And this fact that shares might be undervalued in light of the multi-year growth potential has not gone amiss. Already we've seen Cathie Wood, of ARK fame, load up on more than 5 million Palantir shares which she's distributed among a number of her ETFs. That being said, however, the stock will have to work hard to justify its current market cap of almost $50 billion as it's yet to turn a profit. Palantir is currently trading at around a TTM P/S of 34x which is a little frothy compared to the average 25x that their industry peers are trading at. There are also questions being asked about the company's practice of investing in special purpose acquisition companies (SPACs) to "purchase revenue".

Getting Involved

SPACs have gotten a bit of a bad name for themselves in the press over the past year or two and so any association with them by freshly floated, non-profitable companies is going to raise some eyebrows. However, based on last week's report, less than 1% of the company's Q2 revenue was from SPAC investments. Kevin Kawasaki, Palantir's head of business development, responded to the charge that the company was simply buying revenue by saying "these are companies that we think we will be working with for a very long time. Further, we think that using our product is going to help them win."

For most investors though, any negative pressure from the SPAC question will be discarded in the face of Palantir's current growth trajectory and their long-term potential. They've made quite the name for themselves in the past year and even with Q1's dip, shares are still up 150% from where they IPO'd. With a solid earnings report under their belt and an impressive-looking support line at the $20 mark, there's every reason to think Palantir stock will start ticking higher into Q4 and beyond.