Shares of Palantir (PLTR 2.61%) dropped 24.3% in April, according to S&P Global Market Intelligence. The big data analytics and software firm greatly underperformed the S&P 500 Index last month, which was down only 8.8%. It is likely that Palantir was affected by fears over rising interest rates, inflation, and the potential for a recession, which has severely impacted the prices of growth stocks.
There were no material business updates from Palantir in April, so all these price moves come from changes in market sentiment. Last month, inflation continued to run rampant throughout the United States' economy, with the last recorded data point at an 8.5% year-over-year rate. How does this affect the price of Palantir stock? Well, when inflation is high, the Federal Reserve tends to raise interest rates. When interest rates rise, it becomes more attractive to hold U.S treasury bonds and less attractive to hold an expensive growth stock. With inflation running high, Federal Reserve members have stated they plan to quickly raise interest rates in the coming quarters. This has caused many investors to sell high-growth stocks like Palantir.
It also doesn't help that Palantir is highly unprofitable. The company posted a net loss of $520 million on only $1.54 billion in revenue in 2021. But Palantir is growing quickly, with a 41% year-over-year revenue growth rate in 2021, so one might think that losing money is fine, right? This might be true over a long enough time horizon, but that is not how investors think in relation to rising interest rates. In general, rising interest rates make it tougher for companies to fund losses with debt, so they might be nervous when looking at a company like Palantir compared to other stocks on the market, whether Palantir is going to need to raise any money or not.
An approximate 25% price decline is never fun to experience. But if you are bullish on Palantir, it is nice to know it is just because of macroeconomic factors and the flow of investor dollars and not because of a fundamental change to the business.
As of this writing, Palantir trades at 13.4 times its trailing sales, which is close to an all-time low for the stock. With solid double-digit growth, high gross margins, and long-term contracts with the federal government and large corporations, the stock looks increasingly attractive here. If you are confident in Palantir's business and are comfortable weathering any interest rate-induced volatility, now could be a good time to pick up some shares of the stock.