Splashy IPOs have been a hallmark of 2020. You can certainly place Palantir (PLTR) on the list of companies who have made impressive market entries. While the big data specialist got off to a relatively slow start after going public at the end of September, it has picked up some serous momentum during the year’s final months. As a result, shares are up by a massive 170% since the public listing.
Which is precisely why Credit Suisse analyst Brad Zelnick tells investors to stay away. The analyst rates PLTR an Underperform (i.e. Sell) along with a $17 price target. This figure implies a steep 34% descent from current levels. (To watch Zelnick’s track record, click here)
That’s not to say Zelnick thinks Palantir is a bad company.
“To be clear,” the 5-star analyst said, “We continue to believe Palantir offers a unique data analytics platform, helping organizations solve some of the most complex challenges in the world – including those related to the fight against COVID-19. That said, with the stock trading at ~46x EV/CY21 revenue, we see risk/reward skewed to the downside.”
There are other risks involved, too. These include a dependance on a small set of clients – 60% of the company’s revenue is generated by just 20 customers, and an overreliance on “large, lumpy deals.”
With most of its business generated by providing data analytics to government bodies, there are ESG (Environmental, Social and Governance) investing concerns as well, plus the lock up period of 80% of shares outstanding expires in mid-February.
This could put additional pressure on the stock’s performance, and Zelnick expects a “significant supply to come to market.”
RBC analyst Alex Zukin also believes the company’s weakness could be due to its dependency on huge contracts.
Palantir’s average customer pays the company over $5 million a year (the top 20 customers pay over $25 million), and although these indicate Palantir is “solving highly valuable problems,” these “large, lumpy deals can make revenue growth and margin profile of the company more volatile than similar SaaS peers.”
Plus, like Zelnick, Zukin points out the ethical aspect might weigh on investors’ minds.
“Palantir is dedicated to serving U.S. government organization and their allies, the missions and objectives of certain organizations that Palantir supports may from time to time receive social scrutiny which could pressure shares,” the 5-star analyst noted.
Accordingly, Zukin currently has a Sector Perform (i.e. Hold) rating on the shares along with a $15 price target. The downside here is even heavier, with a 41% drop anticipated from the stock’s current price. (To watch Zukin’s track record, click here)
The rest of the Street is on the same page. Palantir’s Hold consensus rating is based on 1 Buy, 3 Holds and 2 Sells. Overall, the analysts expect shares to pullback significantly as the $14.50 average price target indicates. (See Palantir stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
