Palantir Technologies (NASDAQ:PLTR) is one heck of a hot stock. Its shares began trading at the end of Sept. 2020, coming to market via a direct listing. Since reaching a high of $45 on Jan. 27, like many other “meme” stocks, this company’s share price has tumbled. PLTR stock closed at $29 on Friday.
Let’s take a look at why the shares have lost some steam since the company announced its earnings on Feb. 16 and what the market thinks about this stock right now.
Investors May Be Concerned About Palantir’s Lockup Expiration
Since Palantir went public via a direct listing, the shares that became available were not newly-created. Rather, they had been held by early investors and employees over the years. These large, early shareholders are required to wait until the company’s “lockup period” expires before selling their holdings. Palantir’s lockup period expired on Friday.
According to some estimates, the number of shares that exist, including those covered by vesting options, is more than 2 billion. Given the fact that, by some estimates, only around 500 million shares are available to be traded, we could see some massive selling of PLTR stock on the horizon. That could certainly be a reason why some investors are taking their profits right now.
It appears many investors are willing to take their profits off the table before waiting to see how this lockup expiration plays out. Indeed, I think that’s the safe move right now. That said, if we see a massive influx of buying once the shares fall further, PLTR stock could recapture all of its upward momentum.
Palantir’s Earnings Were Worse than Expected
Palantir reported its fourth-quarter earnings on Tuesday. The company’s revenue came in above analysts’ average estimate, as Palantir generated $1.1 billion of sales in the quarter. Its top line climbed 47% year-over-year.
Much of the company’s sales is derived from favorable contracts with the government. In fact, approximately 56% of Palantir’s revenue comes from government agencies. Partly due to the stability of these contracts, many investors have bought PLTR stock recently.
Palantir signed 21 contracts worth $5 million or more during the quarter. Indeed, from a revenue perspective, this company looks solid.
Despite the company’s positive revenue story, it appears investors are concerned about its bottom line. Palantir reported a surprise loss of 8 cents per share, versus the average estimate of a profit of 2 cents per share. Indeed, it appears that investors are demanding profitability from the company now.
Underwhelming Growth Projections
Palantir said that it expects its sales to increase more than 30% this year. For most companies, that’s great. For a firm that just posted YOY growth of 47% in Q4, however, that projection seems a bit underwhelming.
Thus, it appears the near-term shock of an unexpected yet small loss, combined with a weaker growth forecast than investors had expected, pushed the shares lower last week.
I think Street will be keeping a close eye on Palantir’s growth in 2021. If the company can post higher-than-expected revenue growth and generate profits, PLTR stock could regain its momentum.
The Bottom Line on PLTR Stock
Right now, I think Palantir has too much downside momentum, while the lockup expiration is a huge hurdle for this stock. If investors are truly bullish about the company, holding its shares may make sense. For those considering adding a new position, however, I would consider waiting before doing so.
Palantir generates excellent revenue growth, and its portfolio of government contracts provides reliable cash flow. There’s a lot to like about this company right now.
That said, there are a significant number of questions that need to be answered about the company in the short-term. I have no idea how this stock will perform in the coming days. However, I wouldn’t gamble on PLTR stock right now, as its risk-reward ratio appears to be unfavorable.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.