Since last November, it’s been investor perception rather than fundamentals driving price action in Palantir (NYSE:PLTR) stock. Trying to value this big data company’s shares using traditional valuation metrics has thus far been a fool’s errand.
You can say the stock’s rich valuation is built on its impressive growth projections. But, I would wager more of that has to do with qualitative factors. Namely, its deep ties with the U.S. Federal Government. In addition, the perception that Palantir has cutting edge proprietary technology.
Many remain bullish on the stock based on these two factors. But enthusiasm is no longer at levels seen a few months back. And, as analysts poke more holes in its bull case and recent contracts do little to move its share price, there may be additional downward pressure ahead.
Sure, that’s not set in stone. The company may be able to deliver sufficient results, and new developments, that help support today’s valuation. But if you’re expecting a quick rebound to its all-time highs, don’t hold your breath. It’s going to take some time for this once hot stock to take off once again.
PLTR Stock and The Flaws in its Bull Case
At first glance, the bull case for Palantir shares makes sense. There’s plenty to signal it has a big advantage over rival data analytics firms when it comes to business with the federal government. Over time, as defense, national security, and civilian agencies depend more on data than firepower/manpower, it’s names like this one that will lock down a larger share of federal contracts.
So far, investors have perceived this to mean the company can continue to grow at a 30%+ clip. But, as I’ve written previously, it’s uncertain whether that’s going to be the case. Its growth in the governmental space may stall out sooner than expected. With that, it’ll need its commercial segment to help pick up the slack.
Yet, as Melius Research’s Carter Copeland detailed in his initial analyst coverage of Palantir, commercial growth so far has come at a slower-than-expected pace. Copeland gives shares a “hold” rating, and a $20 per share price target, buts the company’s mixed success in expanding its commercial book of business is the main reason behind his on-the-fence view of shares.
The analyst is more positive on the company’s governmental business. But, he points out that the company remains a tiny player in the contracting world. In short, investors could be overestimating its actual power and influence within the beltway. Sure, so far criticism of the stock has been no match for investor enthusiasm for it. Yet, as seen from its muted reaction to recent contract wins, excitement over this stock is waning.
New Developments Aren’t Moving the Needle as Much Anymore
On April 5, news came out of the company winning a contract with the National Nuclear Security Administration (NNSA). This provided a brief boost for PLTR stock. However, since then, shares have fallen back to where they were before the announcement. This makes sense; a contract worth a total of $89.9 million is hardly a game-changer.
But, compare that to the market’s reaction to a similar development a few months back. If you can recall, shares shot up by double-digits in December on news of a $44.4 million contract win alone. In short, unlike before, small potatoes like this just aren’t moving the needle all that much anymore.
So, what’s needed to send this stock back to the moon? It’s going to need material development. Not just a single sub-$100 million contract win (governmental or commercial). I’m talking about a major deal, that can, over time, produce hundreds of millions or billions in revenue. Outside of that, there’s little that can send shares back into hyperdrive.
What do I mean? The 2020 U.S. election cycle is over. The possible upside from the Biden administration is already priced into shares. “Meme stock madness” is largely over-and-done with. Retail investors active on Reddit have already had their fun with PLTR stock.
Simply put, don’t expect this stock to move in a big way on overarching trends alone. Dependent on company-specific, game-changing news, shares may stay at today’s prices or move lower in the short-term.
The Bottom Line: Stay Away, Unless It Dips Further
Belief in Palantir’s qualitative strengths (its connections and proprietary technology) may be enough to hold the stock steady at today’s price levels. Yet, lacking its previously high levels of investor enthusiasm, it may be a while before shares make a material move higher.
If shares fall further from here (say, to $10-$15 per share), then give Palantir a second look. However, at today’s prices PLTR stock is not that appealing.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.