- Palantir (PLTR) stock is on the right track.
- Investors focused on its shrinking government business and ignored growing overall revenue.
- If it can get back above $15, the trend could carry it up 25% into summer.
The pandemic changed the world — especially Wall Street. Investors’ approach to trading equities may never go back to the old ways. And a big part of this sea change is the influx of new retail investors. They had inexperience, but that brought a fresh perspective on things. Out of this, meme stocks emerged, including Palantir (NYSE:PLTR). This was more bad than good for PLTR stock investors.
The good part was that meme stocks caught fire, and PLTR rallied $370% in about a month. Unfortunately it peaked 13 months ago and it’s been downhill ever since. The rally was way too hot, which made it impossible to sustain.
Palantir at its lows last month had lost more than 77% of its value. Those who chased it late are in a world of hurt. Luckily I was holding it before the mega-spike and I booked profits along that crazy rally.
But my prognosis today is that PLTR stock is worth holding for the long term and not for its meme status. It has recovered some from the recent lows, but there should be much more gains in the future. Its business fundamentals are strong and it operates in the growing AI segment. Therefore, it should have strong demand for years to come.
The digitization process is ramping up exponentially. Humans will need artificial intelligence to process the data. Competition is not a problem since the process is in its infancy. All legitimate providers have room to prosper this early.
| PLTR | Palantir | $12.42 |
PLTR Stock Is In Good Hands
The reaction to its last earnings report was disappointing. Investors focused on the deterioration of its government business and apparently missed that overall revenues still grew more than 30%. Businesses change their sales mix often — that is a sign of a competent team. Apple (NASDAQ:AAPL) is doing it from hardware to services.
Adaptability sets a company up well to sustain success for a long time. The pedigree of the company shows maturity beyond its relatively young life. Wall Street just needs some time to figure that out.
Until then, PLTR dips are buying opportunities.
Technically, there is good news from hitting the February lows. The deepest point happened because of a market-wide correction after Russia invaded Ukraine. The timing was unfortunate, because it hit after the negative earnings reaction. But since then, bulls have established a series of higher lows. If its price soon rises above $15 per share, PLTR stock can extend its rally another 25% into the summer. Over longer time, investors should accumulate this stock in smaller increments.
Wall Street Is Too Cautious On PLTR Stock
Palantir already has a successful business, therefore it’s not your average, frothy meme stock. Wall Street investors are not keen on high-growth, high-spend companies right now, but Palantir’s metrics are normalizing a bit. In fact it now creates over $300 million positive cash flow from its own operations. It is important in a rising-interest-rate environment to not need to borrow much.
The 15.8 price-to-sales suggests that investors in PLTR stock now have realistic expectations. According to Yahoo Finance, the average price target is around $15.
Value will not be the reason investors should buy into it. At this stage of the game, Palantir should be focusing on deploying cash to deliver growth. Tweaking profitability can come later. Just ask Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA). You can’t build an empire while pinching pennies.
On the date of publication, Nicolas Chahine 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.