Shares of Palantir Technologies (NASDAQ:PLTR) fell sharply following earnings that were a mixed bag. PLTR stock had risen to recent highs near $27 before succumbing to selling pressure after the report. Look for more selling in the next few weeks now that the upside momentum has been broken on an overvalued PLTR.
Earnings came in as expected at 4 cents per share. Revenues were a beat at $392 million, above the consensus of $385 million.
The company did guide higher as well, expecting Q4 revenue of $418 million. That is well above previous analyst estimates for $402 million. While certainly a beat, revenue was not a knock the cover off the ball type of beat.
InvestorPlace contributor Chris Tyler has a bullish view on PLTR post earnings. Yet even an avowed bull like Mr. Tyler notes that the revenue growth and guidance came in rather tepid.
In his report, he notes that the latest earnings release marked the slowest revenue growth since Palantir came public. This is certainly problematic for a company trading at over 27x Price/Sales.
The combination of slowing growth with sky high multiples is finally leading some to question valuations. Ultimately valuations do matter, even in a momentum driven market like we have now.
Perhaps, that is why RBC analyst Rishi Jaluria downgraded PLTR stock to underform post earnings. His new price target was lowered from $25 to $19 based on slowing revenue growth. The average analyst rating according to TipRanks is now a moderate sell with a price target of $22.83. That implies a nearly 6% downside to the $24.25 closing price of PLTR stock.
Technical Take on PLTR Stock
Moreover, Palantir is looking decidedly bearish from a technical perspective post earnings. PLTR stock broke below the all important 20 day moving average. This has been a harbinger of further downside in the past. Shares also failed to hold the uptrend line which has also led to lower prices previously.
Momentum has just turned negative. Short for moving average convergence/divergence (MACD) is poised to generate a sell signal on any further weakness.
Rush Street Interactive Inc (NYSE:RSI) dropped sharply in nine days but is still not at oversold readings. Look for a retest of the recent lows near $23 over the coming weeks.
How to Trade PTLR Stock
Palantir options still carry a decent amount of premium even after earnings. Implied volatility (IV) is near the 50 level. This means option selling strategies continue to be viable when constructing trades.
So a bearish call spread makes probabilistic sense. You can get paid now to position to be a seller of PLTR stock at at higher prices all in a defined risk fashion.
Trade idea: Sell PLTR in December for $27 calls and buy PLTR in December $29 calls for a 25 cents net credit
Maximum gain on the trade is $25 per spread. Maximum risk is $175 per spread. Return on risk is 14.28% for 37 days (225% annualized).
The short $27 strike price provides a 11.34% upside cushion to the $24.25 closing price of PLTR stock. It is also right at the recent highs near $27 where the latest rally failed.
On the date of publication, Tim Biggam 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.
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. Tim has appeared on PBS and the Nightly Business report, while maintaining weekly appearance on Bloomberg TV and CBOE-TV to discuss everything from volatility to LEAPs. Tim has also been invited for reoccurring appearances on CNBC’s Volatility Playbook.