If valuation matters – and you’d figure it eventually does for all publicly traded securities – then Palantir Technologies (NYSE:PLTR), despite its compelling services, probably isn’t the most ideal opportunity. However, in this absolutely nutty market environment, anything goes. Therefore, PLTR stock may very well be a buy but only for the extreme speculator.
Don’t get me wrong – this is a company to watch closely. In early January, I noted both the significance and the challenges associated with Palantir’s business. Geopolitically, it’s important for American institutions and government agencies to have an edge on data science and artificial intelligence, particularly against the Chinese.
On the other hand, economic woes could cause budget decreases for both government and commercial clients. Additionally, federal efforts to revitalize the economy has so far been lacking, which really puts budgetary pressure across all agencies. Still, I noted that PLTR stock was “charting a bullish flag/pennant formation, which has significant upside implications.”
Talk about what could be the understatement of the year. Since the January opener, PLTR stock finds itself up 50%. But can it maintain such ludicrous momentum?
On the surface, the bulls have encouraging developments. During Palantir’s much-anticipated demo day, it delivered what research firm Jefferies described as a “highly differentiated platform across commercial and government environments.” Further, analysts there stated that “PLTR is in a class of its own,” addressing challenges for which rival software companies have no answer. In summary, Palantir presented three applications:
- Foundry is a data integration platform that improves an enterprise’s operational efficiencies. Notably, this platform features a “what if” analytical modeling program that allows users to extract potential outcomes from specific tactics/strategies.
- Gotham is primarily geared for mission-critical services for governmental/military operations. A key feature is its software at the edge connectivity, allowing users to securely share information in the battlefield.
- Apollo provides an experience similar to Software as a Solution, enabling cloud-based operations under a secure ecosystem.
As I stated, the inner workings of PLTR stock are impressive. But it will be difficult to continue justifying shares that trade at nearly 50x sales.
Why PLTR Stock Could Still Soar in the Near Term
Of course, I understand the argument that Palantir can grow into its valuation. That’s the bullish thesis behind what many consider transformational investments, such as Tesla (NASDAQ:TSLA). Nevertheless, as wild of a ride as TSLA has enjoyed, its price-sales ratio is nearly 31x, not 50x. Naturally, this is going to turn off many conservative investors from PLTR stock.
Under normal circumstances, I would unequivocally urge readers who are profitable on Palantir to take some profits off the table. Aside from the overvaluation issue, insiders have been selling leading up to the demo day. That’s not a great sign of confidence if it’s largely the retail folks that have been buying up PLTR stock.
However, these are not normal market conditions. Obviously, the best example of this is GameStop (NYSE:GME). Back in June, I suggested that GME is a speculative buy if you have some cash you don’t “need” lying around. Primarily, I thought that the cheap entertainment angle was a viable one considering the economic crisis.
I got to tell you: I was expecting a 200% or maybe 300% gain over the long run as consumers eschewed recurring video game subscriptions for one-time-only purchases. But an 8,000% upside in less than a year? That’s part of the reason why I appear a lot smarter than I am. This was pure dumb luck.
And this dumb luck phenomenon appears to be targeting PLTR stock and why not? Yes, on paper, Palantir is experiencing a short squeeze, where bearish traders must buy back the equity units they have “contractually” borrowed to cover their positions. Otherwise, severe pain will commence because there’s theoretically no limit to how high a security can go.
Possibly, Palantir can become the next GameStop. If so, you don’t want to mess with this crowd.
An Easy Guideline in a Tough Environment
With circumstances playing out as they have, my idea for PLTR stock is simple. If you haven’t already bought shares prior to the madness, you may want to wait. But if you’re a speculator, it’s your call. In this wacky ecosystem, you just might make some short-term gains.
Full disclosure: I took a speculative shot with chump change on BlackBerry (NYSE:BB). And my position on AMC Entertainment (NYSE:AMC) turned into chump change but has now inexplicably turned into change-plus. I mention this because speculation at the right time does yield great results.
However, I would not get carried away. At some point (maybe by the time you’re reading this), the fervor will die. It always does. Therefore, play responsibly.
On the date of publication, Josh Enomoto held a long position in GME, BB, and AMC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.