Equity markets are finally showing some two-way action. Up until recently, the bulls were in complete control. September brought about a few selling days. The bears are making a push, thereby creating buy-the-dip opportunities. Palantir (NYSE:PLTR) stock is one of them, so we will discuss the timing and the level of conviction that are possible this month.
Spoiler alert, I like owning the shares for the long term. The company is firing on all cylinders and its businesses are growing. The management team sounds extremely confident in its efforts. They seem to be executing flawlessly on plans. In a bullish stock market, PLTR stock will be higher in the future. Therefore, investing in it now is a viable thesis.
Timing the entries is tricky since it sporadically joins the Reddit posse. My default action on it is to buy-the-dips when they present themselves. The current zone of interest for that is around $25 per share.
But recently, PLTR spiked to $29 per share even as the S&P 500 was falling fast. Finally, Monday brought heavy selling and a 10% correction followed, but only to retest the neckline.
PLTR Stock Dips Are Opportunities
When a stock breaks out from a level, it is OK to revert to check it for footing. Federal Reserve headlines aside, I expect that PLTR can still make more progress this month.
Since these macroeconomic conditions are unique, I will degrade my conviction a notch on purpose. This means that investors should not take full positions all at once. I remember not too long ago selling PLTR puts to catch the falling knife below $20 per share. Things can turn sour quickly especially with a momentum stock like this.
Fundamentally, the metrics back up my enthusiasm for owning it long term. Management has grown its income 2.2 times in the last three years. They serve the government as well as the commercial sectors, so they have diverse income streams. Valuation is not as important right now, even though it’s definitely expensive.
The PLTR stock sports a 38 price-to-sales ratio, which is not cheap. However, when a company is growing fast it can quickly bring that metric to normalize. The same thing happened to Zoom Video (NASDAQ:ZM) last year. Its price-to-sales fell from 125 to a more reasonable 24. Investors should not demand profitability when buying into a growth stock. They either avoid it, or just judge it by its growth rate metrics not the bottom line.
Short-Term Levels to Know
Technically, PLTR stock has risk below $26 per share. Losing that could bring sellers for another $2 from there. Nevertheless, buying it here makes sense especially if the intention is to hold it. Active traders should consider stopping out below $26 and try again 7% below that. For the past year, the volume profile for PLTR stock (pictured) shows that the market loves it around $24.50. Therefore, falling into that zone would bring about a band of support from lurking buyers.
The recent correction came from predictable levels. I’ve mentioned them for months in prior write ups. In April I specifically placed a line on the chart highlighting the important of $30 per share. On Friday, it failed pennies away from that level, so this is nothing new to fret.
The macroeconomic conditions are still conducive to growth. However, we expect that the Fed will reduce the tailwinds that it’s providing to the economy. This could cause some selling as investors adjust to the idea of less QE. The taper is not the end of the QE because it will last months. We are far from being in a tightening cycle. Until then, the Fed is still a friend and not a foe.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
