Shares in analytics software company Palantir(PLTR) have been resilient, even though Wall Street analysts were beginning to question the sustainability of its high rate of growth. Retail investors, in particular those associated with Reddit’s r/WallStreetBets trading community, remained bullish on the stock.
However, after the company’s recent earnings release, this may be starting to change.Discussions about PLTR on r/WSB have fallen considerably. Without the meme crowd to bolster it, could another big drop be in the cards? Let’s dive in and find out what’s next for this former meme favorite.
PLTR Stock, Earnings, and The Market’s Response
On November 9, Palantir reported its results for the quarter ending September 30. For the period, ittopped revenue estimates, generating $392 million in sales, versus analyst consensus of $385 million.
The company also delivered earnings per share (EPS) of 4 cents, in line with expectations. Its latest updates to its revenue outlook were also positive. Guidance for Q4 2021 is now $418 million, versus $402 million projected by the sell-side community. For the full year 2021, it expects to post $1.53 billion – in other words, year-over-year revenue growth of 40%.
Nevertheless, instead of popping on the news, shares dropped, resulting in a 9.4% dip on November 9 alone, and a 7.1% decline the following day. While PLTR traded for just under $27 per share ahead of earnings, it is now worth around $22.83 per share.
So, is the drop the result of investors “selling the news?” To some extent, perhaps. But besides the latest earnings report, there’s been another development that has weighed on shares: an analyst downgrade that dropped shortly after earnings.
Why The Latest Analyst Downgrade May Signal a Bumpy Road Ahead
On November 10, RBC Capital’s Rishi Jaluriareleased his newest rating on PLTR stock. His take was a brutal one. After downgrading shares and lowering the price target, Jaluria is now worried about two things.
The first is a slowdown in growth in the company’s key governmental services business. The increase in revenue from U.S. Federal contracts have fallen by half quarter-over-quarter. Second, Jaluria believes that the company’s commercial growth, which has accelerated, is largely driven by the company’s SPAC (special purpose acquisition company) investments.
According to the RBC analyst, without these deals, where the SPAC acquisition target signs on as a Palantir client, the company would have posted much lower commercial sales growth. All in all, the analyst is doubtful that the company can sustain a 30%+ rate of growth going forward.
This of course isn’t the first time someone from the sell-side has called out the company and its growth projections. But it appears that Main Street is open to following Wall Street’s bearish lead at last. The road ahead for PLTR stock may become bumpier.
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