The term ‘irrational exuberance’ is often used to describe a stock that has risen beyond its fair valuation, suggesting it might have reached a point where it represents a risky investment.
It’s a term top investor JR Research applied to Palantir (NYSE:PLTR) stock in March. Back then, the shares had been piling on gains due to their association with the AI trend, prompting the investor to suggest that the stock had soared too high, too fast.
“I acknowledged PLTR’s incredible AI growth momentum and opportunities through its Artificial Intelligence Platform,” says the 5-star investor. “However, I highlighted my doubts about PLTR’s overvaluation. As a result, I assessed that PLTR was priced for perfection, as AI investors headed into early 2024 with too much AI FOMO.”
“Priced for perfection” is another good term that is important here. Because expectations were high ahead of the big data company’s Q1 report, and that perfection was not attained even though it delivered a strong readout. While the company delivered a beat on both the top-and bottom-line, it was not quite enough. Palantir even raised its full-year revenue guide but not to the extent investors had hoped for.
The result has been a stock that has declined by 18% since the March highs, amidst what JR calls a “justified valuation de-rating to reflect potentially higher execution risks.”
So, down to the nitty gritty, is the stock a Buy now?
While JR admits that the stock is “hardly cheap,” the investor thinks fears have “likely peaked” and that from a technical point of view, the stock appears to be finding its footing, or “bottoming out.”
“While the risks of relative overvaluation cannot be ruled out,” JR summed up, “I assessed a possible buying opportunity above the $20 zone as PLTR looks ready to surge higher and re-test the $30 region.”
Accordingly, JR now rates the shares a Buy. (To watch JR Research’s track record, click here)
Looking at the consensus breakdown, JR’s bullish thesis gets the support of 2 analysts, but they represent a minority on Wall Street. With an additional 7 Hold (i.e. neutral) recommendations and 3 Sells, the analysts’ view is that this stock is a Hold. With the average price target standing at $21.89, the figure suggests the stock is currently fully valued. (See Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
