Palantir’s (NYSE:PLTR) stock had a direct listing in 2018 that drew attention because of the company’s background and ambitious goals. Funded by the CIA’s investment arm and widely used by the U.S. military and government, Palantir aimed to be the primary data system for the U.S. government and expand its Foundry platform for enterprise clients.
After going public, Palantir’s stock surged from its $10 debut to a peak of roughly $39 in early 2021. However, it has since dropped to the $16 level because of slowing growth and valuation concerns amid rising interest rates. Let’s talk about why steering clear of Palantir is the best move for investors.
Bearish Sentiment is Increasing on PLTR Stock
I have to admit, I’m not a fan of technical analysis, or analysts or companies focusing on sentiment as a key fundamental driver. However, with PLTR stock, I think these metrics can be more useful, given the makeup of the company’s investor base.
Earlier this month, certain media outlets began reporting on large bearish positions being taken out on the company by significant investors.
A sentiment analysis was completed, with only 30% of respondents showing a bullish stance on the stock, and a whopping 70% of investors appearing to look elsewhere. Indeed, for retail investors betting on the next short squeeze, these aren’t the metrics you’d want to see.
Looking at put and call options on the stock, it appears the market is tilting toward a bearish stance on the stock, with the put-call premium suggesting the company could have further to fall, at least in the near term.
Palantir’s Growth is Slowing
Palantir has aimed for 30% annual revenue growth after going public, and while the company has hit this target in the past, its growth has significantly slowed. Palantir grew 24% in 2022 and projected only 16% growth in 2023.
Challenges included Gotham’s government contracts and macroeconomic headwinds for Foundry’s enterprise clients. Palantir is determined to overcome these by expanding its AI Platform.
Analysts predict Palantir’s revenue to grow at an 18% compounded annual growth rate (CAGR) from 2022 to 2025, reaching $3.2 billion. This growth rate is slower than that of other cloud-based software companies.
ServiceNow (NYSE:NOW) is expected to grow at a 22% CAGR, while Snowflake (NYSE:SNOW) at 31%. Moreover, ServiceNow and Snowflake have lower price-to-sales ratios. Palantir’s forward price-to-sales ratio is 16, indicating that it may be overvalued compared to its growth potential.
There Are Better Options Elsewhere
Those bullish on PLTR stock may point to the company’s double-digit growth rate, its push toward profitability (the company has strung multiple consecutive quarters together of profit) and a high-margin business with plenty of profitability growth ahead. Those are fair points, and I’ve covered the bull case on this stock in the past.
However, it think the reality is that Palantir needs to grow to sustain its share price and valuation. Market participants are in this stock for its growth, and if the company can’t deliver on this front, it’s likely to be bad news for investors putting fresh capital to work in this name.
Simply put, investors may be better off shifting their potential investment in Palantir toward other more stable and profitable companies in the market.
On the date of publication, Chris MacDonald 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.
