Palantir Stock Down 8% in December – Time to Buy PLTR Stock?

The price of Palantir stock has gone down 8% so far this month as the November post-earnings weakness experienced by the data analytics company has spilled over to the last month of the year.

Some interesting announcements made lately have failed to overturn this downtrend as market sentiment toward growth stocks continues to be quite negative.

On 2 December, Palantir announced that it secured a $43 million contract with the Space Systems Command’s (SSC) Cross-Mission Ground & Communications Enterprise (ECX) that extended an existing agreement with the agency to a total face value of $91.5 million.

On that same day, Palantir announced another deal with Kinder Morgan – a large company that specializes in the development of energy infrastructure – through which the firm will deploy its Palantir Foundry data analytics platform to help the corporation in increasing the efficiency and safety of its storage operations.

Finally, the company announced last Friday that the US Army granted it a second option related to the military body’s Vantage program agreement valued at $116.3 million. This second option is part of a $458 million contract awarded to the company back in 2019 to leverage its innovative data analytics solutions for multiple purposes including improving the Army’s weapons accountability procedures and monitoring immunization rates within the organization.

Palantir seems to be on a roll in terms of attracting new business but the market’s attitude continues to be quite pessimistic. Could this be an opportunity to buy the stock at a lower price?

In this article, I’ll be assessing the price action and fundamentals of this tech stock as we keep heading toward the beginning of a new year.

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Palantir Stock – Technical Analysis

The price of Palantir stock seems poised to end the year with negative performance as it has declined from $23.55 per share to $19.06 per share last Friday. This results in a 19% loss despite the pronounced uptick that PLTR experienced during January and February as a result of the meme stock craze.

When I last wrote about Palantir, I highlighted that a break below the $20.5 horizontal support could lead to a decline to the mid-to-high 10s in the following days and that is exactly what has happened lately as PLTR stock declined to $18 at some point this month.

Thus far, momentum indicators could be pointing to a recovery in the short-term for Palantir stock as the Relative Strength Index (RSI) has posted a mild bullish divergence while the MACD seems poised to cross above the signal line.

The MACD’s negative histogram readings have also been decelerating to the point that they are about to turn positive and that reinforces a short-term bullish outlook.

That said, it is still too early to tell if this move will result in a full-blown trend reversal. Moving forward, unless the price breaks above the stock’s short-term moving averages it would be plausible to expect further weakness in the price action.

Meanwhile, the most important support to watch is the $17 level. If that threshold is broken, the stock could experience a sizable decline – possibly aiming for the low 10s.

Palantir Stock – Fundamental Analysis

During the nine months ended on 30 September this year, Palantir reported a 44% jump in its top-line results at $1.1 billion while its gross margins improved nearly 1,000 basis points compared to the same period a year ago at 73.2%.

The firm also managed to trim its operating losses by two-thirds as they moved from $1 billion last year to $352 million during these first nine months.

Meanwhile, on an adjusted basis, operating profits reached $350 million compared to $86 million reported a year ago resulting in a 2,100 basis points improvement of the firm’s operating margin at 32% while its free cash flows swung to positive territory at $320 million resulting in a free cash flow margins of 29% compared to minus 37% last year.

A simple run-rate of the company’s free cash flows produced so far this year would give us an annualized figure of at least $427 million. This would result in a current price-to-free-cash-flow valuation metric of 89. Meanwhile, the firm is also trading at almost 25 times its forecasted sales for 2021.

These valuation metrics remain fairly stretched and that creates room to further negative volatility if economic conditions deteriorate – i.e. higher interest rates, more elevated risk premiums.

With this in mind, Palantir is a great business but its valuation leaves little room for further upside potential ahead in the current environment.

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