If a notable analyst doesn’t like a stock, should you sell it? That’s a crucial question pertaining to data analytics firm Palantir Technologies (NYSE:PLTR), and owners of Palantir stock must consider whether to hold on to their positions in the face of skepticism.
To be honest, Palantir stock hasn’t been around for very long. In fact, the stock just started trading on the New York Stock Exchange on Sept. 30 via a direct listing.
The stock was a big hit from the get-go. Early-stage investors have been rewarded handsomely with powerful returns. So, why would anyone have doubts about the future of Palantir stock?
There’s actually a big-bank analyst with a skeptical attitude about Palantir stock, so we’ll consider the merits of the bearish thesis. In the end, however, faithful investors might find compelling reasons to stay in the trade.
A Closer Look at Palantir Stock
As I alluded to earlier, Palantir stock was popular with the trading community from the outset. The stock was assigned a $7.25 reference price, but it wouldn’t stay at that price for very long.
On its first day of trading, Palantir stock opened at $10 and reached a daily high price of $11.42. The stock closed that day at $9.50, but that was still 31% higher than the original reference price.
Today, Palantir stock remains quite popular. Hundreds of millions of shares trade hands on any given day when the market’s open, and on the final trading day of 2020, PLTR stock settled at $23.55.
That’s a huge gain within a three-month span. Clearly, the bulls are fully in control of Palantir’s price action. Yet, there’s a prominent analyst who seems to want to throw a wet blanket on this red-hot stock.
A Sell-Side Perspective
We’re living in the Information Age, and data analytics is a great field in which to run a business.
Palantir says it builds software that “lets organizations integrate their data, their decisions, and their operations into one platform” so they can “make the best decisions for safety, stability, and prosperity.”
How could anyone possibly take issue with Palantir stock? Well, evidently Credit Suisse analyst Brad Zelnick considers the company’s $50 billion valuation untenable.
In support of his position, Zelnick notes that 20 customers account for about 60% of Palantir’s revenue. Thus, Zelnick complains that Palantir’s business is reliant on “large, lumpy deals.”
With that, Zelnick downgraded his rating on Palantir stock from “neutral” to “underperform.”
Great Clients to Have
I’m not sure exactly how Palantir’s deals could be characterized as “lumpy.” I do see how “large” they are, though, and that’s not necessarily a bad thing.
As a big-data mining company, Palantir has had clients like the Central Intelligence Agency (CIA), the Department of Defense, the Food and Drug Administration (FDA) and the United Kingdom’s National Health Service. Those are great clients to have, because government clients have no competition and practically have endless supplies of money to spend.
Encouragingly, the U.K.’s National Health Service recently extended its partnership with Palantir by signing a new two-year contract worth up to $31.5 million.
Moreover, the Army Vantage data analytics program reaffirmed its partnership with Palantir with an agreement valued at $113.8 million for the year.
On top of that, Palantir recently garnered a massive $44.4 million contract from the FDA. Reportedly, Palantir’s role will be to assist the FDA with drug reviews and inspections.
And by the way, even as he downgraded the stock, Zelnick actually raised his price target on Palantir stock from $13 to $17.
The Bottom Line
Let the skeptics downgrade Palantir stock if they want to. High valuations can be justified when a company’s business is thriving.
And with high-ticket contracts from government clients with a practically endless money spigot, Palantir should only continue to thrive in the new year.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
