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After 25% Decline, What’s Next for Palantir Stock?
Stock Analysis & Ideas

After 25% Decline, What’s Next for Palantir Stock?

Palantir Technologies (PLTR) stock skyrocketed after listing last year. However, shares of this software company began to lose steam and are down about 25% in one month. Further, Palantir stock is down about 17.7% on a year-to-date basis, falling significantly behind the Nasdaq composite index. 

What’s Hurting Palantir Stock?

The drop in Palantir comes on the back of a steady decline in its government revenue growth rate and a deceleration in contribution margins. 

It’s worth noting that Palantir reported 76% growth in government revenues in Q1. However, this growth rate decelerated to 66% in Q2 and 34% in Q3. Furthermore, Palantir’s contribution margin has declined from 62% in Q420 to 57% in Q321. 

Taking a note of the slowdown in Palantir’s growth rate, Brad Zelnick of Deutsche Bank stated that the company’s Q3 performance disappointed investors with revenue from “government business decelerating significantly.” 

He added that “gross margins continue to compress and contribution margins declined, all raising questions around the mix and LT (long term) profitability of the business.” Zelnick has a Hold rating on Palantir stock. 

Besides the softening government revenue growth, the company’s strategic investments to drive deal and contract value remain a concern. Kamil Mielczarek of William Blair stated that “the strategic investments are becoming an increasingly important driver of growth,” and he remains concerned about the sustainability of this model in the long term. Mielczarek maintains a Sell rating on Palantir stock.

What’s Next?

While Zelnick and Mielczarek showed concern, not all is gloom and doom for Palantir. It acquired 34 net new customers in Q3. Moreover, it closed 54 deals of $1 million or more. Also, Palantir reiterated its annual revenue growth rate of 30% or more through 2025.

It’s worth noting that individual investors and hedge fund managers are accumulating Palantir stock.

TipRanks’ Hedge Fund Trading Activity tool indicates that hedge funds have added 6.6 million Palantir shares to their portfolios in the last three months. Meanwhile, TipRanks’ Stock Investors tool shows that 0.5% of investors holding portfolios on TipRanks have increased their exposure to Palantir stock in the last seven days. 

Wall Street’s Take

Given the slowdown in the growth rate, Wall Street maintains a Moderate Sell consensus rating based on 1 Buy, 3 Holds, and 4 Sells. Further, PLTR scores a 5 out of 10 from TipRanks’ Smart Score rating system, suggesting that Palantir stock could move in tandem with market averages.

See Top Smart Score stocks >>

Meanwhile, the average Palantir Technologies price target of $23.14 implies 19.4% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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