Palantir (PLTR 0.21%) stock tumbled 5% through 10:25 a.m. ET Tuesday morning despite beating on top and bottom lines in its Q1 earnings report last night.
Heading into the report, analysts forecast Palantir to earn $0.28 per share (pro forma) on $1.5 billion in sales. Instead, Palantir earned $0.34 per share -- GAAP -- on $1.6 billion in sales.
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Palantir Q1 earnings
Palantir boasted an 85% revenue growth rate in Q1, the company's highest-ever, U.S. growth was even faster -- 104%. Net income more than quadrupled. Palantir's profit margin hit 60%, resulting in a "Rule of 40" figure similar only to other popular AI stocks such as Micron (MU +13.40%) and Nvidia (NVDA +1.63%).
Palantir considers this a prime financial objective, balancing sales growth and sales profitability, such that the sales growth rate percentage plus the margin on "adjusted income from operations" add up to 40% or better.
At Palantir, it's 145%.
NASDAQ: PLTR
Key Data Points
What's next for Palantir stock?
So that's the good news. Palantir is growing sales faster than ever, and earnings even faster than sales. What's wrong with that?
Well, a couple things, potentially. New contracts scored in the quarter increased by only 61% year over year. That's slower than Q1 sales growth, and may foreshadow slower growth ahead. True, management raised its sales guidance for the rest of this year, forecasting 71% sales growth.
But again, that's smaller than the 85% rate seen in Q1 -- a slowdown.
The way I see it, therefore, the story is this: Palantir's still growing like a weed, and becoming more profitable by the day. But at 164 times earnings, its valuation demands that it keep on doing this. A forecast sales slowdown is the opposite of what growth investors were looking for.
That's why they're selling Palantir stock today.
