Palantir Stock Pullback 30% as Uncertainty Hit’s Sentiment

Palantir's stock (NASDAQ:PLTR) has put holders on a rollercoaster this past month, as volatility hit a new peak. From the 1st February through to the 18th, PLTR gained more than 50%, as impressive earnings, and bullish sentiment pushed the stock to new highs at $125.41. From that point however, the move in the opposite direction has been just as sudden, with the last 4 trading sessions (including yesterday's extended hours) bringing the stock down ~30%.

Concerns over cuts in defense spending were the catalyst, with a significant percentage of the company's revenue coming from Government contracts. The being said, the company's commercial segment continues to grow, and provide a significant source of stability.

This segment, which caters to a wide array of industries with its advanced data analytics solutions, has shown consistent growth, with US commercial revenue up 20% quarter-on-quarter, and 64% year-on-year. The diversification into commercial sectors is a strategic move that potentially mitigates risks associated with reliance on government contracts.

The company also revealed last week that a 10b5-1 plan from its CEO for the maximum sale of 9.975 million shares would be coming into effect, alongside the resignation of it's chief Accounting Officer. Downside pressure to the stock from the CEO sale over the next 6 months is likely to be marginal, with the most recent day's volume seeing 182.1 million PLTR shares changing hands, and the ADV being close to 90 million. The plan is potentially seen more as a potential valuation clue from an insider, whether rightly or wrongly.

Nevertheless, markets remain cautious about Palantir's valuation. The recent fluctuations in stock prices underline concerns that the stock might be overvalued relative to its earnings and growth prospects. Such valuation issues necessitate careful consideration by investors regarding the prudence of immediate investment versus the potential long-term gains Palantir might offer.

Whilst some on the street remain firm bulls, as the high price target of $141 can attest; the consensus of $87.38, paints a slightly different picture. With the latest pullback taken into account, the current price action in the high $87 range is pretty close to fair value according to the street. Notoriously fickle, price targets can shift in a moment, and the fundamentals should play a larger role than the sentiment in long term planning.

While Palantir's commercial segment maintains its strength, the looming threats from defense budget cuts and current valuation concerns require investors to exercise diligence. Weighing these factors against the company's innovative prowess and market opportunities is no easy feat, but one which should be completed prior to taking any new positions.