Palantir (PLTR) has lost about a third of its value since its stock began its post-earnings slide last month. If you think that the drop is due to poor company performance, that's not the case. On the contrary, Palantir beat revenue estimates, provided higher than expected guidance, and anticipates delivering stellar 30% or higher revenue growth through 2025. The primary concerns responsible for cutting Palantir's stock down by a third are transitory, and the company should continue to deliver substantial growth moving forward. Palantir's stock will likely begin to recover from the recent selloff, and the company's share price should move substantially higher in future years.

Palantir's Recent Earnings Lead To A Prolonged Selloff

In Q3 2021, Palantir reported $0.04 in adjusted EPS and revenues of $392 million. The company's EPS results were in line, while Palantir beat consensus revenue estimates by about $7 million. The company's revenues increased by 36% YoY, and Palantir guided to $418 million in revenues for Q4, above the $402 million estimates. During the quarter, Palantir's commercial business revenue expanded by 103% from a year ago, and its customer count surged by 46% QoQ. Moreover, Palantir expects full-year revenues to be $1.53 billion, a YoY surge of 40%, and the company reaffirmed that it expects revenue growth of 30% or higher through 2025.

You'd think that the stock would take off after a stellar report like this. However, the opposite happened. Palantir tanked and has been trending lower ever since.

Palantir 1-Year Chart

Source: stockcharts.com - Palantir could be making a sustainable bottom at the critical $17-18 support level here.

We can see that Palantir's stock is now down by about 33% from its pre-earnings price of roughly $27. Given the strong earnings announcement and excellent guidance, why is the stock down this much, you may ask? Well, there are three primary reasons why Palantir is down, and they're all transitory, in my view.

Palantir reported revenues of $218 million in its government segment, a YoY rise of 34% from last year's $163 million. This result was slightly lower than the general revenue rise of 36% and illustrated a slight deceleration in Palantir's government segment.

Two - The company's generous stock-based compensation ("SBC") program continues to be a concern for some investors. The company reported SBC of about $185 million last quarter. This amount represents a lot of SBC, roughly 47% of total revenues in Q3. Additionally, the company's share count keeps rising. Palantir now has about $2 billion shares outstanding, more than 100% over last year.

Three: There has been a general risk-off rotation in the markets recently. Many higher growth/multiple names like Palantir have declined substantially in a widespread risk-off rotation over the past month.

Transitory Concerns Should Not Keep Palantir Down

Palantir's 34% revenue growth in its government segment illustrates robust expansion, and the company continues to close highly favorable government deals. There's no reason to believe that Palantir is falling out of favor with the government or will lose lucrative government contracts. Instead, growth is decelerating slightly, which should not be a concern, in my view. Palantir is much more than just a government contractor, as the company's commercial side of the business continues to show accelerating growth.

Source: Palantir.com

Revenue growth in Palantir's commercial segment was 37% YoY last quarter, up from 28% in Q2, 19% in Q1, and just 4% in Q4 2020. Therefore, the company's accelerating growth in its commercial business should more than offset the slight deceleration in Palantir's government segment. Ultimately, the company expects to deliver 30% revenue growth or higher through 2025, which is exceptionally high and is a rare find even amongst Wall Street's favorite growth companies.

When it comes to SBC, we need to remember that Palantir became a publicly-traded company relatively recently (slightly over a year ago). We often see higher SBC around IPO time, but the costs related to SBC should decrease as the company advances. We already see share dilution slow down significantly. The share count increased considerably toward the end of last year, just as Palantir became a public company, but we've seen relatively modest QoQ increases in recent quarters. Also, if you think SBC was high last quarter, please consider that it's down by 78% YoY. SBC and dilution should not be a considerable concern as the company continues to expand going forward.

The recent growth selloff was warranted in specific names, as many stocks got ahead of themselves going into November. We saw some stock multiples become excessively stretched, and it was not clear if many names could keep up with analysts' projections. Palantir also experienced a substantial decline in this pullback/rotation period. However, in Palantir's case, the company remains one of the most compelling growth stories. Yet, the company's stock declined by a wide margin in recent weeks, making the company's shares extremely attractive right now. Therefore, Palantir's share price is not likely to stay down for long, and the stock should start to catch a strong bid off current levels.

A Massive Accelerant For Crypto Companies

Palantir's Foundry for crypto software provides security and other essential solutions for cryptocurrency exchanges and other major enterprises in the digital asset field. The company is leveraging its anti-money laundering and know your customer expertise for crypto exposed clients. The crypto industry offers an enormous business opportunity for Palantir, and Palantir expects big things from its new crypto security software.

After all, the cryptocurrency industry perpetually suffers from cybersecurity breaches. An estimated $1.9 billion was stolen by cybercriminals in this space last year. Fraud, theft, and ransomware are rampant in the industry. Therefore, enterprises continuously look for ways to reduce risks, minimize threats, and decrease losses. Moreover, many companies in the rapidly expanding Defi space can benefit significantly from Palantir's Foundry platform. Ultimately, the digital asset space should open up substantial new revenue streams for Palantir in future years.

PLTR Stock Valuation Perspective

While Palantir is not likely to provide substantial EPS in the next several years, that does not mean the company's stock won't go much higher. After all, a growth company's main priority is to deliver growth, and Palantir expects to come through on its promise. Let's take the company's $1.53 billion in expected revenues for this year and add the minimum 30% projected growth rate through 2025. Utilizing this model, we will arrive at approximately $4.4 billion in revenues in 2025.

However, Palantir's growth runway should go far beyond 2025, and the company will likely continue to deliver robust double-digit revenue growth through 2030. Moreover, Palantir should become a remarkably profitable enterprise as well.

Palantir EPS Estimates

Source: seekingalpha.com

While Palantir's earnings are minimal now, the company's EPS should rise notably as the company advances. Furthermore, Palantir should remain a dominant, market-leading growth company in future years. Therefore, its stock will likely continue to command a relatively high multiple. I'm a buyer of the dip here, and I expect Palantir's financials could look like this from now on:

Source: Author's Material

Risks To Palantir

Despite my bullish outlook for Palantir, market participants should consider several potential risks associated with this investment. While the growth story is strong at Palantir, shares are far from cheap. The stock is still quite expensive, especially when valued by traditional metrics. Furthermore, the company's earnings are still minimal and may not increase as much as other analysts or I envision. Moreover, if the company's growth picture were to turn less bullish for whatever reason, the stock could head in the wrong direction. For instance, if Palantir lost favor with the government or had a data breach, the stock could experience a notable decline. Palantir is not a value company. It's an elevated-risk/high reward potential stock. The company needs to execute almost flawlessly and operate optimally for the stock price to continue higher in future years.