What is going on with Palantir Technologies (NYSE:PLTR) today? Shares of the data analytics company slid to a 52-week low of $15.35 this morning amid a market-wide decline. Both the S&P 500 and Nasdaq 100 are down some 1% at the time of this writing. Furthermore, the daily volume on PLTR stock is already 50% higher than average volume. This signifies that shareholders are rushing to sell out faster than buyers can bid up the price. So, what exactly explains PLTR stock’s price decline?
The entire tech industry as a whole has had a rough start to 2022. For example, the Invesco QQQ Trust (NASDAQ:QQQ) has lost more than 5% year-t0-date (YTD), while Palantir has declined more than 10% YTD. There are several factors which may explain this disappointing performance thus far.
Why Did PLTR Stock Hit a 52-Week Low?
Essentially, the Federal Reserve has bombarded the market with a triple threat. These three threats are raised interest rates, tapered asset purchases and a reduced balance sheet. Designed to fight inflation, these moves will also have a side effect: making equities go down.
Tapering asset purchases will reduce liquidity in the market. That signals that the Fed may increase interest rates soon. And when interest rates go up, the cost of borrowing increases as well. Companies are therefore less incentivized to borrow at higher rates, which can decrease company growth. Higher interest rates will also discount future cash flows at a higher rate, which will lower the present value of a company. On this predicament, Ally Financial chief market strategist Lindsey Bell added the following:
“The Fed sounds like they’re going to be a lot quicker in action […] But the reality is we don’t honestly know how they’re going to move and when they’re going to move. That’s going to be determined over the next several months.”
The Bottom Line on Palantir
While investors have to account for any macroeconomic factors in their investment strategies, company-specific factors are important as well (if not more important). To that end, there are several key risks to owning PLTR stock.
First, investors are currently concerned about a slowdown in commercial growth. Palantir is known to invest in special purpose acquisition companies (SPACs), a practice which helped boost its third-quarter commercial revenue. However, excluding SPACs from Q3 revenue, its commercial revenue only grew by an estimated 22% year-over-year (YOY). This growth rate represents a decline from 25% YOY commercial revenue growth in Q2.
Additionally, Palantir’s revenue growth rate from the government sector was “cut almost in half” during Q3 when compared to Q2. RBC Capital analyst Rishi Jaluria recently noted that “Palantir got direct benefits from Covid-related spending and those benefits have already faded.”
Palantir is estimated to report earnings on Feb. 15. Investors will surely want to tune in and observe whether PLTR stock can live up to expectations moving forward.
On the date of publication, Eddie Pan did not hold (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.
