It’s been a month since I last wrote about Palantir Technologies (NYSE:PLTR). I believed in January that PLTR stock was undervalued. It’s lost about a dollar since. But, in my eyes, it’s still undervalued.
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My InvestorPlace colleague, Larry Ramer, believes that Palantir is overvalued. He’s concerned about its lack of profitability. He believes investors should sell Palantir stock.
Interestingly, Ramer believes Digital World Acquisition Corp (NASDAQ:DWAC) is a high-risk, high-reward investment. He rates it a buy. I’m on the opposite side of the fence. I considered it a dog with fleas. I believe it could be one of the most overvalued stocks trading on a U.S. stock exchange.
We don’t see eye-to-eye on these two stocks.
Both are unprofitable. One is worth owning. One isn’t. Here’s why I feel this way.
At Least PLTR Stock Has a Price-to-Sales Ratio
There have been times in the past where I’ve agreed with my colleague about a stock. But, unfortunately, this is not one of them.
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Here’s what Ramer had to say about Palantir in his most recent commentary in early February:
“In multiple, past columns, I’ve noted that Palantir prints a great deal of red ink, particularly if its huge amounts of stock-based compensation are factored into the equation. For example, in the third quarter, it lost $385 million, if the approximately $283 million of stock that it issued are factored in.”
He finishes his article by saying that based on the fact it trades at 15x its 2022 sales, he recommends you sell its stock. Fair enough.
I find his stance on these two companies somewhat baffling. Here you have a company in Palantir with 2022 estimated revenues of $1.99 billion. Yet, he thinks it’s overvalued.
On the flipside, Ramer thinks Digital World is a buy, albeit high-risk, even though it’s yet to merge with Trump Media and Technology Group, has no revenues, and is likely to lose money once it launches Truth Social, Donald Trump’s social media platform.
So, let me get this straight. It has no P/S ratio, it has no P/E ratio, and so far, DWAC is nothing but unfulfilled promises, yet my colleague’s willing to buy the stock with his hard-earned capital.
God, love ‘em. He’s got nerves of steel. I’ll give him that.
What Will It Take For DWAC to Get to $2 Billion in Sales?
From where I sit, I consider any business that can scale revenues to the tune of $2 billion to be a success. Granted, that doesn’t mean it will ultimately be a cash flow machine. It might even go bankrupt. Who knows?
But if we’re talking about playing a technology version of Let’s Make a Deal, 10 times out of 10, I’ll be picking PLTR over DWAC. There’s no comparison.
Here’s what I said about DWAC in my most recent article about the stock:
“I think it is hilarious that the markets are tanking and the only thing going up right now is a poorly-run shell game by a two-bit wannabe hedge fund investor,” I wrote on Feb. 1.
“I dare you to read this Washington Post article about Arc Capital. If it doesn’t make you think twice about owning shares in this pathetic excuse of an investment, nothing will.”
Okay, maybe I got a little carried away with my characterization of the investment. Still, honestly, I don’t know how you can read the Post’s article I link to and not have misgivings about investing.
Yet, in my colleague’s eyes, DWAC is a buy and PLTR is a sell.
So, let’s consider how fast it will take Truth Social to get to $2 billion in sales. Oh, I forgot, no analysts have made estimates just yet. They’re probably waiting to make sure the combination goes through.
Not to worry. My colleague had some estimates in his Nov. 4 article about Digital World. He sees it generating $900 million in sales and $180 million in profits in its first year. It took Twitter (NYSE:TWTR) more than six years to get to an annual run-rate of $900 million. And even then, it did so while losing more than $600 million.
I know some people think Donald Trump’s poop doesn’t stink, but, as I’ve said before, Ramer’s $900 million/$180 million scenario has wishful thinking written all over it.
The Bottom Line
I’ll agree with my colleague that Palantir’s got compensation issues. I said as much in May 2021, arguing that investors should wait until it traded in the teens.
However, my tone began to mellow over the second half of last year. The company was generating a lot of commercial business and looked headed in the right direction. I don’t think anything’s changed on that front. Its business is still up-and-coming.
Look, if you don’t think Palantir is worth buying, don’t. I think you’ll make money by buying at current prices over the long haul.
But if we’re putting labels on tech stocks, Palantir’s the real deal, and Digital World is an imposter. I don’t see how you can put the two in the same league. I really don’t.
Buy Palantir stock. Use DWAC shares as kindling.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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