Palantir (NYSE:PLTR) investors may have hoped the earnings release on Feb. 17 would spark a comeback for PLTR stock. Unfortunately, that’s not what has played out.
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Instead, disappointed with the numbers, the market has again bid down this big data play and former meme stock favorite. Dropping by 16% following its quarterly earnings report, PLTR stock closed at $11.77 per share. The following day, the stock dropped another 6%, sending it closer to the $11 mark.
You may see Palantir’s low double-digit price and still-strong revenue growth as a sign that’s its time to scoop up this possible bargain. However, “bargain” may not be the best word to describe PLTR stock today. Although it has seen heavy multiple compression, it continues to trade at a premium valuation.
Of course, it is possible that past concerns prove to be overblown. However, it may still be difficult for shares to maintain their high forward price-earnings (P/E) ratio with interest rates on track to move back up. That’s not to say a big decline is in store. But with the prospect of more underwhelming returns in the near future, there’s little reason to buy shares today.
PLTR Stock: The Latest Earnings Report
For the fourth quarter ending Dec. 31, Palantir didn’t necessarily report “bad” results. Revenue of $433 million came in above guidance of $418 million. Year-over-year (YOY) growth of 34% is nothing to sneeze at. Just like in Q3, growth of the company’s U.S. commercial business also came in at a very high level (132%).
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Furthermore, for the full year 2021, total revenue grew 41% to $1.54 billion. For the year, Palantir reported positive adjusted EBITDA, adjusted operating income and adjusted free cash flow as well. Yet, in the eyes of the market, the company’s slight earnings miss (2 cents per share versus an expected 4 cents per share) mattered more.
At least, that’s what market commentators see as the reason behind the big PLTR stock post-earnings selloff. That said, while this may be the rationale for the selloff, this may not be its true reason. In other words, as investors cycle out of growth stocks, the market is looking for any reason to push the “sell” button.
Even as the data analytics company finds success balancing its federal and commercial clientele, expect this to continue.
How Much Lower Can It Go?
Admittedly, the worst price declines have likely passed for PLTR stock. Down more than 64% in the past year and roughly 57% in the past six months, another drop at this level is probably not around the corner. On the other hand, though, I wouldn’t expect the stock to come back in a big way either. Perhaps down the road, but not in the immediate future.
Yes, based on this quarter’s results, Palantir continues to grow at a rate above its own internal target of 30% per year. Not only that, commercial sales growth — and especially U.S. commercial sales growth — is happening at a rapid pace. With this, I may need to reassess my previously dim view on its ability to move beyond its “beltway bandit” roots.
Even so, the fact that Palantir’s story could remain intact doesn’t guarantee it’s ready to move back to $20 or $30 per share. Why? The prospect of it morphing from government contractor to tech company is already accounted for in today’s valuation. Based on sell-side earnings estimates for 2022 (20 cents per share), PLTR stock trades at a P/E ratio of 55.7 times.
Granted, this valuation is a lot more reasonable than the triple-digit P/E ratio the stock sported last year. Still, the market is continuing to readjust stock prices ahead of rate hikes. This former high-flier has room to see more multiple compression. Albeit, at a more moderate pace. By the time the dust truly settles, Palanitr may find itself bottoming out in the high single-digits.
Even if You’re Bullish, Take Your Time with Palantir
You probably don’t need to be concerned about PLTR stock getting another 50% haircut. Its commercial sales numbers from last quarter signal that it will be able to keep on achieving its goal of 30%-plus revenue growth. The expansion of its commercial book of business may be enough to outweigh deceleration of growth with its legacy governmental business.
But until the market is done adjusting to changes in monetary policy? Growth stocks like Palantir could still see an additional slide. If not that, the stock will find itself stuck at today’s prices until it grows into its valuation.
So, even if you’re bullish, hold off on PLTR stock. There’s plenty of time to lock down a long-term position.
On the date of publication, Thomas Niel did not hold (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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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