Editor’s Note: This article was updated on Jan. 25, 2021, to correct the Citi price target.
With Joe Biden now the 46th U.S. President, what’s next for Palantir (NYSE:PLTR) stock? Shares went parabolic after the U.S. elections, as investors bet big that a Biden administration would be a boon for this big data company with deep government ties. But, does this perception that the Biden years will be salad years for PLTR stock match up with reality?
Yes, it’s well established that the new administration will make changes that bode well for Palantir. But, this potential tailwind may be more than reflected in its epic move from around $10.50 per share in early November, to around $25 per share today. At today’s valuation, shares price in possibilities as near-certainties.
But, as seen from the stock’s stalling out in recent weeks, enthusiasm is cooling off. Some of this is due to recent downgrades, but also for a bevy of reasons. Valuation, for one. Concerns such as decelerating growth, for another, as well as the upcoming insider lockup expiration.
Putting it simply, there’s more on the table today to send shares lower, rather than higher, in the coming months. With this in mind, what’s the call? Sell it if you own it. And steer clear if you don’t.
The Bear Case Grows for PLTR Stock
As shares tread water, it’s clear the “Robinhood effect” (retail investors on Robinhood diving into the stock on momentum) is no longer at play with Palantir shares. As I said previously, this was a factor key in its post-election rally.
But now, without retail speculation boosting the PLTR stock price, its underlying fundamentals are now more important. The problem? The sell-side community is starting to sour on this “hot stock.”
First, it was analysts at Credit Suisse and Morgan Stanley back in December. Both downgrades were largely driven by valuation concerns. Yet, a new downgrade from Citigroup’s Tyler Radke highlights other major risks.
Besides the specter of the lockup expiration, Radke also cited decelerating growth as another reason for his bearish call. He’s skeptical that the company’s commercial unit will grow in line with expectations.
Sure, PLTR stock saw a nice boost after announcing a deal with utilities giant PG&E (NYSE:PCG). But, it will take more than this to show its commercial business is moving in the right direction. Many dove into Palantir on the strength of its government connection tailwinds. But, continued success in the private sector is key to moving the needle in the long-term.
While Radke downgraded the stock from “hold,” to “sell,” he raised his price target to $15 per share from $10 per share. With shares holding steady, a move towards this price target doesn’t look likely right now, but the upcoming insider lockup expiration could put substantial downward pressure on shares.
Insider Selling Will Bring Volatility
Those skeptical of PLTR stock at today’s prices are waiting for the other shoe to drop, and that other shoe is the upcoming lockup expiration. As InvestorPlace’s Will Ashworth wrote, company insiders can start cashing out once the company reports full-year 2020 results. That’s expected to happen sometime in February.
With the stock’s rapid rise since its September direct listing, insiders may be chomping at the bit to take profit. However, I concede that fears of an insider exodus may be overblown. While bullishness for Palantir has faded since December, it remains fairly strong.
That’s apparent from its continued ability to rally on small potatoes news. And just the recent PG&E development. If you can recall, back in December, shares shot up 12% on news of an FDA contract win, worth just $44.4 million.
Further boosts could be in the cards if the company announces additional contract wins. As this Motley Fool commentator noted, recent contract re-ups indicate the company is at little risk of losing much of its existing business. Another sign this “hot stock” is far from running out of gas.
In short, there’s no guarantee PLTR stock is set to crater from here. There may be enough positive news to outweigh negative news in the coming months. But, while that means the downside may be limited, room for additional gains may be minimal as well.
Bottom Line: Big Downside, Little Upside
While there are valid concerns Palantir’s heading much lower from here, it may not be as big a risk as it looks at first glance. Even with the specter of insider selling, there may be enough at play to keep shares steady at today’s prices.
The problem? Upside may be minimal. With valuation stretched, it’s hard to see PLTR stock surging to $30 per share (and beyond). So, with runway limited, and downside massive, what’s the call? Sell into strength as shares hold steady at today’s prices.
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.