Palantir - The PERFECT recession-proof company

Palantir - The PERFECT recession-proof company

This article is not financial advice

A recession is a macroeconomic term that refers to a significant decline in general economic activity, typically recognized as two consecutive quarters of slowing GDP (Gross Domestic Product). Other monthly indicators such as unemployment, retail sales, and industrial production are taken into account as well. Although recessions are a normal part of the business cycle, recessionary times can lead to a decline in the stock market. 

When the market is fearful of bad times ahead, it has been proven that companies with healthy balance sheets and a plan to thrive during hard circumstances usually win. Here is why I believe Palantir could be a PERFECT recession-proof company.

• Palantir has $2.27B in Cash on the Balance Sheet

Having a large cash balance is important during unpredictable times. Although Palantir is FCF positive, this gives Palantir a multi-year cash burn rate in case of any catastrophic events. 

• $50.7M Investment in Gold Bars

Speaking of catastrophic events, in 2021, Palantir purchased more than $50M worth of physical gold bars. The gold bars are kept at an undisclosed location available at any request. Gold bars are often called the "crisis" commodity" due to its long history of stable value.

Embracing nontraditional currencies “reflects more of a worldview,” Shyam Sankar, the chief operating officer, said in an interview. “You have to be prepared for a future with more black swan events.”

• Stable Government Revenue

In 2021, Palantir recorded $897M in government revenue. Although the majority of its government revenue came from the United States ($678M), Palantir is working with other countries across the globe. 

Government income is considered "safer" revenue due to its multi-year contracts and guaranteed payments. Once a government finds a vendor or contractor they like, they rarely switch.

• No Debt

Palantir has a very clean balance sheet. They have $0 in any long-term debt or payables. In fact, Palantir has 2.4X the amount of cash compared to total liabilities on its balance sheet and 3.5X the amount of total assets compared to total liabilities. Debt can be a burden to companies during recessionary times. When revenues diminish and interest payments are due, debt-heavy companies may not survive. 

Conclusion

In my opinion, Palantir has been built to thrive in bad conditions. The company carries no debt, was $400M FCF positive in 2021, sits on a mountain of cash, and has physical gold bars in case of catastrophic times. Their revenue is predictable and safe with the majority of it coming from the United States government. Palantir may even be able to grow faster in bad economic times by making cheap acquisitions and companies leaning on their software for help.

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