Palantir’s 340% Rally Faces Key Tests in Earnings, Lockup’s End

Palantir Technologies Inc.’s blistering rally will face two key events this week with an earnings report on Tuesday morning, followed by the expiration of a lockup three days later that could unleash a wave of selling from insiders tempted to cash in their shares.

The data-mining company’s stock has more than quadrupled in the seven months since its direct listing amid a string of high-profile sales deals and interest from retail traders. The gains have raised concerns on Wall Street that Palantir could be in for a turbulent week if it’s unable to meet expectations that have risen along with the share price.

“We remain positive on the long-term opportunity ahead,” said Brent Thill, an analyst with Jefferies who has a buy rating on the stock. “However, we acknowledge the need for near-term caution.”

Palantir’s 340% Rally Faces Key Tests in Earnings, Lockup’s End

Palantir is expected to report revenue of $300.8 million, according to data compiled by Bloomberg. That would result in annual revenue of $1.07 billion, up 44% from 2019. While Palantir is likely to beat estimates, it’s annual sales forecast could fall short of expectations, according to Morgan Stanley.

The company’s market valuation at 39 times 2021 sales estimates implies revenue growth well in excess of 40%, which could be difficult to achieve, said analyst Keith Weiss, who has the equivalent of a sell rating.

“Add on an impending lock-up release of ~80% of total shares three trading days post 4Q20 results and the premium valuation, we see a decidedly negative risk-reward,” he wrote in a research note.

There are signs that investors are heeding these warnings. Palantir shares have declined for two consecutive weeks and are down 18% from a record high late last month. Despite the pullback, the stock is still trading more than 60% above the average price target on Wall Street.

Details on Palantir’s larger sales deals will be a big focus for investors on Tuesday, according to Jefferies’s Thill. Among deals reported in the past three months are a $44 million contract with the U.S. Food and Drug Administration and a partnership with International Business Machines Corp. to offer its software through the tech giant.

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