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Why Palantir Stock Just Crashed

By Rich Smith - Jan 28, 2021 at 2:05PM

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The data-mining company just signed another big contract and -- wait -- its stock is going down?

What happened

Shares of big data contractor Palantir Technologies (PLTR 3.98%) plunged in afternoon trading Thursday, down 7% as of 1:30 p.m. EST, an apparent victim of stock market turbulence surrounding the recent short-squeezing phenomenon -- and efforts by regulators, stock brokers, and Wall Street talking heads to combat it.

And yet, the actual news about Palantir today is quite good. 

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

This morning, Palantir announced it has signed a multiyear enterprise agreement for mining concern Rio Tinto (RIO 3.59%) to use its Foundry Platform to "integrate raw data from a multitude of disparate sources into a representation of critical mining operations."

Granted, Palantir did not ascribe a value to the contract with Rio Tinto, but Palantir COO Shyam Sankar did let on that Palantir considers the deal to be "a significant industry partnership," indicating that the deal size is probably material.  

Now what

The question investors face now, unfortunately, is whether any single deal can be sufficiently material to justify Palantir's rocketing share price.

At $68.2 billion in market capitalization, Palantir -- which is not profitable now -- is not expected to become profitable by generally accepted accounting principles (GAAP) before 2024 at the earliest, generating only $47 million in positive free cash flow over the past year. Its stock sells for a valuation of more than 68 times sales and more than 1,450 times its annual cash profit.

Suffice it to say that, with numbers like these, short-sellers don't have to look very hard to find a reason to sell Palantir stock short.

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Stocks Mentioned

Palantir Technologies Inc. Stock Quote
Palantir Technologies Inc.
PLTR
$8.36 (3.98%) $0.32
Rio Tinto plc Stock Quote
Rio Tinto plc
RIO
$68.96 (3.59%) $2.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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