Many stocks have crossed the Wall Street Bets charts over the past year on Reddit, some with strong investment potential and others with little chance of delivering returns other than a one-time pop. A name that always seems to come back is Palantize (PLTR -3.35% ). Over the past year, Palantir’s stock has been on a rollercoaster ride and sits around $11, down 70% from its high after hitting $35 in January 2021.

With its 2021 fiscal year on the books, the company has delivered solid growth and fantastic guidance. However, the stock still sold 6% the day after the earnings call. Is this stock definitely down on luck, or is there a great investment case brewing for Palantir?

Shift the focus from government to commercial

Much of Palantir’s business revolves around one thing: analytics. Its Foundry software enables clients to leverage multiple data streams and make informed business decisions in areas such as supply chains or manufacturing.

However, Palantir did not start with commercial ventures. It started with its government-focused Gotham software. Like Foundry, it combs through mountains of data identifying patterns humans cannot detect to predict future events. The data processed by Palantir’s software has sparked much debate, as many believe it to be an invasion of privacy. Anyway, Palantir’s software is good at what it does (some would say too good in the case of the government), and its uses are manifold.

The transition to commercial was necessary to continue its growth and diversify its clientele. Palantir’s finances have been positively impacted by this decision, as commercial revenue in the United States grew 132% in 2021 and now accounts for 13% of revenue. Total annual revenue increased 41% to $1.5 billion, while quarterly revenue increased 34% to $433 million year-over-year. Looking ahead, CEO and co-founder Alex Karp reiterated his expectation of annual revenue growth of 30% or more through 2025. If Palantir can sustain 30% growth through 2025, its figure of business for the full year will be $4.3 billion, an increase of 186% in four years.

Important expansion to come

For a company generating $1.5 billion in revenue, Palantir has relatively few customers. It grew its user base from 139 in 2020 to 237 in 2021, marking a 71% increase. This means that the average customer spent $6.3 million with Palantir during the year, which shows just how expensive this product is. Still, many companies can afford this software, especially if it means ironing out supply chain issues.

To drive growth, Palantir increased its commercial sales force in the United States from 12 at the end of 2020 to 80 at the end of 2021. Palantir is looking to build momentum into 2021 after growing its commercial customer base in the United States. United by 371% in 2021. All good – to capture big US business, so if it fails to grow, it’s not for lack of trying.

Palantir’s other growth lever is upselling to existing customers. The relative success of the tactic is illustrated by the net retention rate, which lets investors know how much customers have increased their spending from a similar period last year to this year. Palantir’s net retention rates for the fourth quarter were strong across all customer bases.

Source: Palantir.

Government spending remained high, with the US government spending $1.41 with Palantir for every dollar spent last year. Additionally, Palantir has shown its stickiness by retaining all government customers from 2020 to 2021.

Market disagreement

With these impressive numbers and fantastic upsells, it’s hard to find fault with these metrics. Although its profitability is an area with which many investors take issue. For the full year, Palantir lost $0.27 per share with a negative operating margin of 27% based on generally accepted accounting principles (GAAP). When stock-based compensation is removed, this measure increases to 31%. Palantir has spent $778 million paying its employees with stock in 2021. While this is a cheap way to pay labor (because Palantir can create new stock with a snap of fingers), shareholders suffer when their shares are diluted. This is something to be aware of, but if the business grows much faster than its dilution, its effect will not be noticed.

Due to its unprofitability, Palantir saw its valuation reduced in the recent tech sale. From a price-to-sales (P/S) perspective, it is almost back to its IPO valuation.

PLTR P/S ratio data by YCharts.

Now that it has fallen to a reasonable ratio of 14 P/S, the stock is starting to look attractive. At the start of 2022, I didn’t think Palantir was a worthy stock to hold in this environment. Still, with its strong growth projections and falling valuation, Palantir could be an excellent long-term stock pick.

If you’re a growth investor with a three to five year time horizon, Palantir might have market-beating potential. Also, Cathie Woods ARK The fund has sold nearly all of its stake in Palantir, so the company should be out of the spotlight, allowing financial results to drive the company rather than fanaticism. Palantir is doing everything it needs to grow, so investors who can hold the stock without worrying about general market sentiment can earn substantial long-term returns by buying stock today.