Another Drop in Palantir Stock Isn’t Out of the Question

  • The Russia-Ukraine war and positive analyst coverage boosted PLTR stock
  • Geopolitical conflict may help the company hit revenue growth targets
  • Continued valuation concerns could create an opportunity for bottom fishers
Palantir (PLTR) logo on data network background, imaginary location in the future
Source: Spyro the Dragon / Shutterstock.com

In recent weeks, things have been looking up for Palantir Technologies’ (NYSE:PLTR) investors. On Feb. 24, shares of the big data analytics company briefly dipped below $10 for the first time in more than a year, hitting a low of $9.74. Over the past month, though, PLTR has managed to mount a 35% comeback from that trough to trade in the low teens.

Part of the reason for renewed investor optimism is due to positive analyst coverage and the belief that Russia’s invasion of Ukraine could create additional demand for the company’s data analytics software. Palantir has experienced slowing growth in its bread-and-butter governmental business. But increased adoption of its technology by the U.S. and foreign governments amid heightened geopolitical tensions could help counter this trend.

While this may not be enough to send PLTR stock back to its highs, it could justify a partial recovery. However, shares still look overvalued and rising interest rates are likely to continue to put pressure on growth stocks. So, patient investors may get the chance to scoop up shares of Palantir in the single digits.

PLTR Palantir Technologies $13.18

Analysts Warm to Palantir Amid Geopolitical Conflict

Success selling its platform to civilian and defense agencies is what put Palantir on the map. But as this market matured, the company become more dependent on expanding its commercial book of business in order to sustain a high rate of growth and the price of PLTR stock.  As growth slowed, shares faltered, falling 43% over the past 12 months. 

However, as I mentioned above, increased geopolitical uncertainty may prove to be a positive for Palantir, leading to more business from governments. 

This was one of the bullish factors cited by Piper Sandler’s Weston Twigg when he initiated coverage of PLTR stock earlier this month with an “overweight” rating and a $15 target. From the current price, that represents upside of around 14%. 

Twigg noted that the company’s 41% revenue growth for 2021 and its expanding sales team bode well for continued growth. He said he believes Palantir can meet CEO Alex Karp’s forecast of 30% or more compounded annual growth through 2025. Additionally, Twigg said the recent sell-off in shares has made their valuation more attractive.

Morgan Stanley analyst Keith Weiss is also warming to PLTR stock. He upgraded shares to “equal weight” and raised his price target to $16. Weiss cried improving fundamentals and better visibility among his reasons for the upgrade.

Positive analyst coverage, along with the market-wide bounceback, helped PLTR stock stabilize and move higher in recent weeks. However, that doesn’t mean the extended sell-off in shares has finally come to an end.

Why PLTR Stock Could Move Back Into the Single Digits

If Palantir’s commercial sales growth remains strong and recent world events provide a boost to its government business, the company could deliver results that are in line with or above expectations.

But meeting expectations may not be enough to sustain Palantir’s valuation. Trading for around 13.4x estimated 2022 revenue and 60x forward earnings, it remains fairly high. Granted, not as sky-high as it was when PLTR stock traded in the $20s, $30s or $40s (during its days as a meme stock favorite).

Downside risk from here may not be substantial. After all, the company’s top line is projected to grow at around a 30% annual clip. It’s doubtful the market will let this stock fall to what could be considered a fire-sale valuation (an earnings multiple of under 30x). Instead, it may just be a matter of it giving back the gains from its recent war-related boost, and a little bit extra.

Let’s say shares fall back down to the high single digits to around $9 per share. At that price level, the stock’s forward valuation (45x) would take its high projected growth rate into account while at the same time factoring in uncertainties about its prospects of growing both its commercial and governmental businesses.

The Bottom Line on PLTR Stock

Up 26% in the past month, it may seem like Palantir shares have bottomed out, creating a buying opportunity. Yet, bottom fishers know that the time to buy in is when a stock is out of favor.

Recent bullishness in PLTR stock fueled by geopolitics will likely cool and valuation concerns will become top of mind again. Once this happens, shares could drop to a much better entry point for those bullish on Palantir’s long-term prospects.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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