I did not have to crunch big numbers to reach the big conclusion that big data software is a big deal. This explains the enthusiasm surrounding Palantir Technologies (NYSE:PLTR). Without a doubt, PLTR stock belongs to a forward-looking sector, which has investors looking forward to some positive data indeed.
They’ve certainly had a nice short-term run uploading their cash and downloading profits. Shares of the Denver-based company began trading in September at $9.50 per share and have been on the upswing ever since. The stock now trades just pennies above of $28, which makes for an increase of 194%. It also ended the third quarter of 2020 with a healthy earnings beat of 5 cents per share, more than twice the 2 cents analysts had forecast.
And yet, Wall Street has clearly turned bearish on Palantir stock, with six out of seven analysts split evenly between hold and sell rankings. They’ve also set a consensus price target of $16 per share, which marks a 43% dip from current levels. Huh? Has some sort of virus wormed its way into the software upstart?
PLTR Stock and the Push-Pull Effect
PLTR stock went public as a direct listing onto the NYSE and as a result didn’t get a huge push from investment bankers. Lacking the hype and hoopla, direct listings take more time to pop. But when they do, it’s something to behold if you’re holding one. By Nov. 25, PLTR had passed the $29 mark.
But just as real estate agents crow about location, location, location, those following Palantir stock obsess about valuation, valuation, valuation. Analyst Brad Zelnick of Credit Suisse believes the company’s valuation is “disconnected from fundamentals.” On Dec. 18, he downgraded from “neutral” to “underperform” and investors responded by promptly sending shares down 4%.
Here’s the data, pure and simple: As of the week ending Dec. 18, Palantir stock traded at 50% above Credit Suisse’s previous best projections. The company, Zelnick concluded, was “well ahead of itself.”
The question, then, is how does Palantir catch up to itself?
A Demo Day of Destiny
The answer in part may come at 4:30 p.m. EST on Jan. 26, 2021. (Hey, this is an article about a data analytics software outfit — precision counts.) That’s when Palantir will hold its inaugural “Live Demo Day,” which by way of analogy is something like the Battery Day event held by Tesla (NASDAQ:TSLA).
Those who hold Palantir stock should hope for a better outcome than Tesla had with its event, where no actual battery was revealed. Because if Live Demo Day goes well, Palantir will wow enterprise users and investors alike as it shows off its Foundry, Gotham and Apollo platforms. The company also plans to discuss its 2021 research and development roadmap.
While events like this often fall flat as predictable dog-and-pony shows, it will be interesting to witness what kind of excitement the presentations generate. You can’t do worse than the scandal-plagued Nikola (NASDAQ:NKLA), which hasn’t produced a single electric vehicle to date. By contrast, proof of viable products in the pipeline could (and should) temper turbocharged investor gambling with some solid, product-based reality. At some point, a company must sell more than dreams.
Why Waiting Makes Sense
This is an interesting case indeed, one that I’m not sure any software can decode (even if it’s one of those annoying America Online CD-ROMs from the 1990s).
To wit: Palantir stock hit a solid stride in less than two months. It reported 52% growth in its third quarter. Then the investment community began to express its doubts.
But if the company is overvalued, why doesn’t the same non-logic apply here that investors use when buying up shares in electric vehicle companies, for example? “Well, hey, they’re the future,” investors may well reply. And right they’d be. But so is data analytics and any business serious about robust numbers (data-wise or profit-wise) will look back a decade from now and say, “How did we ever do without this?”
I agree with Credit Suisse’s Zelnick: If you buy Palantir stock now, you’re on the high side. Investors often take profits in December to pay for holiday presents. (Coffee shop gift cards to Lou Carlozo make for a wonderful gesture.)
So sit tight: The new year will bring another earnings report and a close-up views of Palantir’s latest products. After all, smart decisions depend on collecting reliable data.
On the date of publication, Lou Carlozo held a long position in TSLA.
