Wall Street Is Bearish on Palantir. Here's Why.

Popular on the main discussion boards, Palantir does not quite please Wall Street analysts. Today, Wall Street Memes takes a closer look at PLTR stock and the bearish case.

US-based software company Palantir draws quite a bit of attention from retail investors across the main online discussion boards. The company, valued at a market cap of $55 billion, provides services to federal agencies, local governments, and enterprises. Palantir is also known for making investments via SPAC (special purpose acquisition companies).

Despite retail investors’ bullishness on PLTR stock, Wall Street does not seem to share the same sentiment. Today, Wall Street Memes looks at some of the key reasons why the sell side is skeptical about the company and its stock.

Figure 1: Palantir logo.

Why so bearish?

PLTR stock currently has an average 12-month price target of $24, based on the six most recent Wall Street reports filed in the last three months. Analysts see 16% downside on the stock based on current share price levels.

• The most bearish is Citigroup’s Tyler Radke.Forecasting a 41% drop in share price, the analyst’s sell rating is supported first by a slowdown in the company’s commercial business. Also, Citi suggests “low-quality revenues” due to Palantir signing new contracts with small companies that are also the target of its SPAC investments.

• The other bear is Morgan Stanley.Analyst Keith Weiss has recently reiterated his sell rating with a $22 price target. He questioned Palantir’s potential to sustain its 30%-plus growth rate, especially due to Palantir’s strategic investment program being at the core of the growth engine. However, the analyst acknowledged a few positives, like 40% year-over-year billings growth.

• Less bearish is Wolfe Research analyst Alex Zukin and RBC Capital analyst Rishi Jaluria. Both have a neutral rating on PLTR and same price target of $25. Wolfe Research recently raised its target from $20, after Palantir’s solid second quarter earnings, despite the company’s growth challenges being in line with the stock’s valuations. RBC Capital mentioned some bullish points on PLTR, including competitive moat, differentiated technology, and unique go-to-market strategy.

The cautious bull

The bull case is supported by Jefferies analyst Brent Thill. He maintained his buy recommendation on PLTR with a price target of $31, for modest 7% upside from current levels. The analyst is aware of skepticism regarding Palantir’s investments in SPACs, but also added:

”We believe that PLTR's commercial initiatives aim to bring its platform to the mass market and that this will take years (not quarters) to execute.”

Lastly, he mentioned the commercial partnership with IBM as a good investment in Palantir’s sales force.

Wall Street Memes’ take

Palantir stock has been having a great run since the end of 2020, when the company became an aggressive investor in SPACs . Concerns over the stock’s growth story seem to be weighing on Wall Street analysts, especially since the excitement around SPACs began to cool down.

At a 2022 P/E of around 135 times and forward price-to-sales of nearly 30 times,according to Yahoo Finance, we believe that the stock can be a tricky investment. Buyers should perform their due diligence carefully before choosing to push the buy button.