Palantir Technologies (PLTR) had been developing into a nice short term short opportunity last week, a downward move that we were studying for its momentum characteristics as shares in the company started to come onto the market following the end of a lock up in place since it came to the market at the end of September.
Palantir has been confounding many market specialists. The end of the lock up was anticipated, with the stock dropping from a peak at 44, rallying slightly from 3-8 February, and then slipping again. Reddit investors then weighed in trying to boost the price again, but it really took the intervention of a couple of funds controlled by Cathie Wood – Ark Innovation and Ark Next Generation Internet.
Heavy buying temporarily arrests downwards trend
This seems to have arrested the decline in the stock, which was heading for the 23 mark, which is roughly where we think the market wants it to be. We saw heavy buying activity on Friday, with Palantir Technologies stock coming out of the gates, going from 25 to 30 as Ark loaded up on the shares along with hundreds of day traders. This snapped an established losing streak for the stock which lost six sessions straight. It has since reached equilibrium at around the 28.50 level although we suspect there will be further downside this week.
Let’s look at the latest numbers from Palantir. Last week it reported a fourth quarter loss (8c / share) – the street had been expecting a loss of 3c / share, so this was not exactly good news. Revenues were up however, at $322m with analysts’ consensus forecasts expecting them to come in at $300m.
Shyam Sanker, COO at Palantir, said on the company’s earnings call that the company had relatively few customers in the Fortune 500 and outlined ambitious plans to now distribute “to the entire market.” He was at pains to point out that there is a shift of emphasis at Palantir from military technology to a wider commercial and private sector remit.
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Is Palantir Technologies looking over-valued?
Some traders have been saying that Palantir is looking over-valued. It looks expensive when measured against peers like Booz Allen Hamilton or ManTech International, with are both IT-focused government contractors. But Palantir is also growing its commercial business and as such, some argue, it should be worth more in terms of a higher PE ratio. Selling technology to the government can be a tough business as so much of it is subject to stringent security requirements and budget oversight.
Compare Palantir with Datadog, for example, and it looks cheaper. The market needs to make up its mind on where it wants Palantir to sit.
Right now we think Palantir is still trading on its novelty value. It needs to expand quickly into further commercial contracting and outside those traditional government-driven earnings flows in 2021 to justify further price growth based on projected revenues. There was still a lot of talk on the earnings call about the miltech side of the equation, while the discussion on the private sector related heavily to the potential for expansion and the importance of critical commercial partnerships (e.g. IBM).
We would be wary of any further spikes in the Palantir price going forward although the presence of large institutional buyers in the market and a Reddit cult that loves Palantir takes the shine off its attractiveness as a short.