What happened
Shares of Palantir Technologies (PLTR 5.10%) fell as much as 7% on Friday morning after a Wall Street analyst cut his price target for the data analytics stock. The analyst isn't questioning the quality of the business, but valuation is an open question in this environment.
So what
Palantir, as my Motley Fool colleague Keith Noonan noted yesterday, is a stock that has been moving in conjunction with the Nasdaq Composite, and so perhaps it should be no surprise the stock got off to a bad start on Friday morning as the broader market traded down. Palantir in particular was hit by Deutsche Bank analyst Brad Zelnick lowering his price target on the stock to $18, from $25.
Image source: Getty Images.
Zelnick is keeping a hold rating on the shares, and says he is overall bullish on software stocks, but in a note he says he has a "healthy respect" for macroeconomic sentiment. The analyst said he is taking a more balanced approach given the market's greater sensitivity to valuations than in recent years.
Indeed, Palantir has been a tough one for investors to figure out. The company went public a little over a year ago and shot up more than 300% in its opening months as a public company, only to give up much of those gains in the months since. The company is a hybrid government contractor and commercial software vendor. Compared to other contractors, its valuation is sky-high, but compared to over commercial businesses, the valuation appears more reasonable.
PLTR data by YCharts.
Now what
The first year-plus of Palantir's history as a public company in some ways has been a battle between bulls and bears over how to value the company. If recent trading is any indication, there isn't any reason to believe that debate will be settled anytime soon.
Palantir has impressive tech, but even after the stock's decline, it still trades at more than 15 times expected sales. And even if management is ultimately able to transform the business into a high-growth commercial vendor, that transformation is going to take time.
Given the broader market uncertainty, it's possible this stock could fall further in the weeks and months to come.
