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PLTR Stock: Rising Rates Could Put More Pressure on Palantir Stock


Since two months, Palantir Technologies (NYSE:PLTR) has been in sell mode. Due to disappointing earnings, as well as the exit of tech growth stocks ahead of expected rate hikes, PLTR stock fell from around $26.75 per share to around $16.75 per share.

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Rebounding in recent days, after dropping to near $15 per share, it may look like it’s about to hit bottom. Where is it? Despite its steep price drop, shares of the data analytics software company still have a very high valuation.

Of course, this in itself is not a problem. Assuming it continues to grow at an above average rate, albeit at a slower rate than previous years. But even if it does eventually happen, the main factor driving it down (rising interest rates) won’t go away. Some may believe that high inflation, and the Federal Reserve’s response to it, is already priced in.

However, the Fed may need to become more hawkish before bringing inflation under control. With higher rates will come more multiple compression. In short, the risk that the liquidation of this former high-flyer will continue in the months to come.

The last with the PLTR stock

Market-related factors have led to big moves for stocks. Business-related factors, on the other hand? There was the announcement of some won contracts. Otherwise, there has been little news from Palantir since its last quarterly earnings release on Nov. 9.

As I explained in my last article on PLTR shares, the company announced superior results in line with expectations. Yet the figures for his government activities have been insufficient. To some extent, this segment is expected to slow down with its commercial segment taking over.

Of course, as recent headlines show, like his deal with Hyundai Heavy Industries, it’s not like the company isn’t building its volume of business. Yet it is still uncertain whether this will allow it to maintain annual revenue growth of 30%. Again, if he provides much better numbers when the results are released next in February? My skepticism could be denied. But that won’t necessarily translate into a rally in equities.

In fact, it may not even be enough to sustain its current price.

Fed policy changes could cause more problems for Palantir investors

With growth stocks down sharply since the Fed started raising rates, it may seem like this change is already priced in. After all, even if the inflation data remains poor, rising rate indicators, such as Treasury yields, have recently stopped going higher.

This argument suggests that the liquidation of growth stocks is over. In short, now is the time to “buy the dip” with names like PLTR stocks, before they rally. But it may be premature to say that the Fed’s policy changes will no longer impact its performance. As central bank chairman Jerome Powell said at a recent US Senate committee hearing: “If we see inflation persisting at high levels for longer than expected, then if we need to increase more interest over time, we will.

Put simply, the Fed could do more than just raise rates by 0.25% four times in 2022. The total interest rate hike could be more pronounced. A more severe “return to normal” in interest rate policy could result in a continued “return to normal” in the valuation of equities, especially growth stocks.

Trading at 113.9x projected 2021 earnings (15 cents per share) and 81.9x projected 2022 earnings (20 cents per share), PLTR shares still have room for more multiple compression. I’m not saying that its price/earnings ratio (P/E) going forward will compress to say, 30x or 40x. Yet even a move to a multiple that values ​​it at 60 times this year’s earnings would drop it to around $12 a share, more than 28% below its current level.

The verdict: still too early to “buy the dip”

Besides the prospect of him falling a bit more before he rebounds, keep in mind that a rebound from Palantir could be partial at best. It may not have the ability to rally above $30 per share, or perhaps even return to its all-time high of $45 per share.

Why? The “meme crowd” isn’t mad about it anymore. Discussion about this, as seen in daily activity data on Reddit r/WallStreetBets, has dropped significantly. In other words, the upside potential may be lower than it first appears.

Weighing the risk of it falling to $12 per share, against the prospect of it returning to, at best, the mid-$20 per share? Consider it too early to “buy the dip” with PLTR stocks.

At the date of publication, Thomas Niel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing individual stock analyzes for online publications since 2016.


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