Down 16% since its first-quarter financial report, Palantir Technologies (NYSE:PLTR) likely has further to fall and Palantir stock should be avoided. Given the problems highlighted in the data analytics company’s earnings and bearish sentiment, investors would be wise to steer clear of Palantir stock. It looks like a risky bet.
Despite its recent decline, the median price target on Palantir stock is about 5% lower than where the shares are trading. The consensus among 13 analysts is a moderate sell rating on the stock.
Weak Outlook
The weakness in Palantir stock comes after a big run. Over the last 12 months, the share price more than doubled (up 108%). Since going public in 2020, the stock has increased 124%. Much the gain came after Palantir turned profitable.
The company has posted six consecutive quarters of profits. While strong, analysts feel Palantir is due for a pullback. The company’s latest print confirmed these worries, with weak guidance sinking the stock.
Palantir reported decent Q1 results, announcing EPS of 8 cents a share, which matched analysts’ expectations. Revenue totaled $634 million compared to estimates of $625 million. Sales were up 21% from a year earlier.
Unfortunately, the company — which builds big-data and artificial intelligence software for governments and businesses — issued underwhelming guidance.
Management said they expect current second-quarter revenue of $649 million to $653 million versus $653 million that was the consensus of analysts. For all of 2024, Palantir anticipates revenue of $2.68 billion to $2.69 billion, weaker than estimates of $2.71 billion.
Diversification
Beyond the soft guidance, Palantir continues to be criticized for its reliance on government contracts. CEO Alex Karp continues to push the narrative that Palantir is diversifying its business and adding private sector clients.
The company conducted more than 650 demonstrations of its data analytics technology with prospective clients in Q1.
So far, government contracts remain Palantir’s bread and butter. Nearly half (43%) of Palantir’s revenue comes from the U.S. government. The company also works with foreign governments, notably the United Kingdom. This leaves Palantir vulnerable to shifting political winds and budget cycles, claim critics.
Recently, Palantir signed a $178 million contract with the American military to develop a next-generation sensor station. The new contact, which runs over two years, is Palantir’s fourth-largest contract by annual revenue.
Palantir also comes under fire for its military work, providing technology for missile targeting and the long-range firing of munitions.
Sell Palantir Stock
Although a few analysts remain bullish on PLTR stock, most have turned bearish. A weak outlook, lack of diversification and reliance on fickle government contracts makes Palantir vulnerable.
After more than doubling, expectations are for a big drawdown in the share price. While the stock has dropped steeply since the Q1 print, the consensus view is that it has further to fall. For these reasons, investors should remain on the sidelines. Palantir stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
