Let me level with you: Denver-based Palantir Technologies (NYSE:PLTR) strikes me as something of a software enigma. The way PLTR stock has risen and fallen since Jan. 21 — up 50%, down 20%, up 23%, down 29% — you’d think the company was making a cloud-based BJaaS (otherwise known as bungee jumping as a service, of course).
Now, let me level with you again: This kind of short-term gyration gives me the willies, and not just because I suck at bungee jumping. Yes, growth stocks will exhibit volatility as the companies behind them mature.
But having followed PLTR stock for some months now, I have to wonder whether sitting on the sidelines is in fact the way to go. I’ll explore that thesis in a bit. But first, some words of caution that don’t necessarily lean toward buy or sell, but rather inform how you approach it.
PLTR Stock: Sold on Buy? Or Buying That You Should Sell?
If you’re looking for a quick score with PLTR stock based on the company’s promise in big data, I’m not sure if you’re barking up the right tree. For one thing, CEO and Co-Founder Alex Karp isn’t exactly the impatient type. He waited 16 years to go public, which happened on Sept. 30, 2020.
And if you think strategic PR events will tip that first domino on a 2021 mega rally, guess again. Since showing off its Foundry, Gotham and Apollo platforms at a Jan. 26 event Palantir dubbed “Live Demo Day,” PLTR stock has shed a quarter of its value. This, by the way, happened after John Rhodes on Seeking Alpha dubbed the event “a success.” The question is, does this compute?
File PLTR stock for the moment under “what is happening?” Rhodes makes a good case that Demo Day put flesh on the bones of Palantir’s early public hype. Yet as Barron’s Eric J. Savitz points out, even analyst consensus is a shifting picture of late. On the same day, PLTR stock “was upgraded to a Buy by one firm and cut to Underperform by another.”
Pondering the Palantir Puzzle
This gets all the more puzzling when you consider what Palantir has just shared with investors. On Feb. 16, it reported revenue of $322 million for the final quarter of 2020, a 40% bump from last year and beating Wall Street’s expectations of $300.7 million. For two straight quarters, earnings per share — in the black, by the way — have clocked in at more than double analyst projections.
But in a Wall Street world where an investment like Pfizer (NYSE:PFE) can struggle after the company, oh, conquers the novel coronavirus, anything is possible. Good news twists into bad. And while
Goldman Sachs, in its recent “buy” upgrade, sets a price target of $34, other firms remain far from convinced.
Currently, four of eight analysts call PLTR stock a sell, and one an underperform. That’s as morose an evaluation for a wannabe high-tech hotshot stock as I’ve seen in some time. And it does not inspire my confidence.
Seeking Sector Wisdom
If you’ve read my musings here at InvestorPlace, you know that I outright confess my borderline ignorance of stuff like Fibonacci curves and Efficient Market Hypothesis. (I think making money is efficient, personally.) But I do focus relentlessly on context, which has strong merits. For example, would you invest in petroleum stocks when the entire world is moving towards green energy, electrics vehicles and sustainable investing?
In the case of PLTR stock, it benefits greatly in a contextual sense from the mass migration of data to the cloud, the acceleration of artificial intelligence and the critical mass of data analytics. None of these tech trends are moving backward and that, generally speaking, gives Palantir a nice tailwind.
But the company hardly has this space to itself. In fact, the playing field is already jammed with countless tech companies that boast the clout to build their own products. Amazon (NASDAQ:AMZN), for example, could, in theory, aim 50 firehoses of cash at creating a big data solution and club the snot out of a company like Palantir. After all, Palantir’s market capitalization is hovering around $45 billion; Amazon’s is $1.55 trillion.
Why I’m Passing on Palantir
So where does that put us, gentle investors? I suppose with all its recent bouncing around and the dim view held by so many analysts, there’s an argument for staying away. But given its two consecutive Wall Street beats, PLTR stock may be a well-disguised “buy the dip” opportunity.
But buying the dip, of course, hinges on whether the dip is in fact a “dip” … or this stock picker is a dip for not seeing that more of a downward slide lies ahead. Here, context and timeline mean everything. I believe if you buy PLTR stock, you should plan to hold it for at least a year to see how it bears fruit.
That’s a risk I’m personally not so comfortable taking or recommending. Small-cap companies in hot sectors like tech have to prove they have something special going on to generate investor enthusiasm. With the PLTR stock investor honeymoon of late 2020 now a memory, I’m not sure this is the best place to look for high-tech riches.
Here, I espouse two tech investment approaches. You can go for big companies such as Amazon and Microsoft Corp. (NASDAQ:MSFT) that have seized the present and are staking out a future in the cloud. Or if you think small cap, seek companies capable of blowing the lid open on an unexploited product or service opportunity.
I don’t see PLTR stock as an investment that fits either of those categories. Big data software? OK. But what’s so special about Palantir’s product line that no one else can outflank, replace, imitate or improve upon it? The answer to me isn’t obvious. And when that’s the case, I take my money elsewhere.
On the date of publication, Lou Carlozo held long positions in AMZN and MSFT.
