Palantir Technologies (NYSE:PLTR), a data analytics company, was one of the hottest stocks out there in early 2021. Due to excitement over the narrative surrounding it, investors bid up PLTR stock to unsustainable levels. The “meme stock” phenomenon may have played a role too in its big run-up last year. However, this is not for certain.
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Flash forward a year, though, and there’s not much excitement left for the company. Over the past twelve months, shares have dropped more than 50%. Admittedly, much of this is due to changing market conditions.
That said, a premium multiple wasn’t the only reason why investors bailed out of it in droves. Growing concern that its rate of revenue growth was slowing down became a big issue as well. Mostly, revenue growth from its governmental business. Yet while the commercial segment has posted impressive growth numbers, it’s unclear whether this will continue, or if its rate of growth will drop off as well.
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Put simply, this big data play is shifting from a stock that could do no wrong in the eyes of investors, to one where the market has taken a “show me” approach. Until this changes, it’s best to avoid.
PLTR Stock and The Reasons Behind its Big Price Decline
Again, changes in the stock market in-general have played a big role in Palantir’s massive stock price declines. With interest rates set to move up, investors have become more hesitant to price growth stock at premium valuations. That is why scores of high-quality tech growth plays sold off in January. It was something that happened mostly due to valuation concerns.
As a result, some of these names have been oversold. Is that the case here with PLTR stock?
Unfortunately, no. Granted, it has attributes that may signal that it belongs in that category.
But you have to remember that Palantir is still an early-stage company. It’s not at the point where it can take its foot off the gas. While it may have the governmental data analytics space on lock, it’s still fighting for a large share of the commercial artificial intelligence (AI) and big data market.
Years down the road, it may achieve this, becoming a tech powerhouse on par with some of the largest names in the NASDAQ 100. For now though, there’s high uncertainty whether this will happen. Worse yet, as growth in its main business starts to decelerate, there’s the risk that its results will come in far below expectations in the quarters ahead
The Story’s Changed With Palantir
Although PLTR stock experienced a fairly large drop in price during late winter/early spring 2021, for most of the year it managed to hold steady between $20 and $30 per share. While not as enthusiastic for it as before, the market remained confident that it was still a solid growth story.
Transitioning from a customer base made mostly of U.S. governmental agencies like the Department of Defense (DoD) and Department of Homeland Security (DHS), the bull case for Palantir was that, with its advanced AI/data analytics software, it could continue to grow at a 30% clip for the foreseeable future. But starting in November, this bull case really started to break.
First, when it reported earnings for the September quarter. On the surface, Palantir’s top-line numbers didn’t disappoint. Revenue surged 36% from the prior year’s quarter. Its U.S. commercial business saw its revenue growth come in at a staggering 103% year-over-year. However, looking at the details, several analysts didn’t like what they saw. Mostly, the fact that its governmental business reported weaker-than-expected results.
Also, one analyst, RBC Capital’s (NYSE:RY) Rishi Jaluria, argued that Palantir’s method of growing its commercial sales was unsustainable. Jaluria downgraded the stock, citing decreased confidence that it could continue hitting its 30% annual growth objective. This downgrade, alongside changes in the market, helped to drive its big plunge lower. Now trading for around $13 per share, down from $26.75 per share in early November, it could keep on dropping in price.
The Verdict With PLTR Stock
Earning a “D” rating in my Portfolio Grader, Palantir has become too much of an uncertain situation to consider it a good buy. Even as, with its big drop late last month, it’s gone on sale just like other high-profile tech names.
Later this month, when it next releases quarterly results, we’ll have a better idea whether the situation here is set to get worse. Or, if the response to November’s earnings release was an overreaction. But until then?
With its story changing, from that of a tech giant in the making, to a busted growth story in the making, hold off on PLTR stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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