Anticipated Decline of Palantir Shares by 50%?
Palantir Technologies (NASDAQ: PLTR) stock, currently trading above $120, has some investors questioning if it could tumble down to $60. With such a significant dip in mind, one might consider this possibility unlikely. However, let's delve into why it might not be completely out of the question.
Just a few short months ago, in late 2023, PLTR stock was hovering around $60. In fact, fewer than half a year prior, the stock was only $30 per share. It's important to remember that stocks can rise just as quickly as they can fall. Despite the stock's recent surge, Palantir is still trading at a hefty valuation. Its current market price of $124 translates to about 300 times trailing earnings and 220 times projected FY'25 earnings. And it's valued at an impressive 75 times forward sales.
Several factors have contributed to this stock's rise, including the interest in generative AI, Trump's re-election as U.S. President, and strong earnings reports from the company. Yet, the stock market often focuses on short-term trends, which could lead investors to expect continued growth from Palantir in the commercial sector, beyond its core government business.
That being said, there are significant risks involved. For instance, the high valuation makes the stock vulnerable to market downturns. In addition, the company's reliance on government contracts, which account for over half of its revenue, presents uncertainty. These agreements can be unpredictable, and a shift in geopolitics could impact demand for Palantir's software.
The past four years have shown PLTR stock's volatility, with returns varying significantly compared to the S&P 500. While this volatility has accompanied substantial growth, it also poses a risk. Moreover, diversified portfolios, such as Trefis' High Quality Portfolio, have outperformed the S&P 500 over the same period, demonstrating the potential benefits of a risk-focused strategy.
Overall, while a drop to $60 might seem unlikely, it's worth remaining cautious given the stock's high valuation and the risks associated with its government contract reliance. The stock market is inherently unpredictable, and investors should always consider a variety of factors before making investment decisions.
Despite the current Palantir Technologies (PLTR) stock price surpassing $120, suspending the notion of a potential tumble to $60 seems unlikely given the stock's historical volatility. As recently as late 2023, PLTR stock was trading at around $60, emphasizing the speed at which stocks can fluctuate. Moreover, the pltr valuation, with a market price of $124 translating to approximately 300 times trailing earnings and 220 times projected FY'25 earnings, makes the stock susceptible to market downturns.
