Investors in Palantir Technologies (PLTR) should keep in mind the risks involved since the company relies heavily on big deals with high customer concentration as it tries to build a sales force, one analyst says. Palantir stock fell Friday.
Credit Suisse analyst Brad Zelnick cut his rating on Palantir stock to underperform, though he did raise his price target to 17 from 13. Zelnick is concerned that just 20 customers account for roughly 60% of revenue. The company is highly dependent on government contracts that may be harder to come by in the future.
Meanwhile, its sales force has limited experience and is building up to broaden its commercial contracts. But that will take time, he says.
“We downgrade Palantir to underperform as we see valuation disconnected from fundamentals with the stock now trading over 50% above our previous blue sky scenario,” said Zelnick.
Shares slipped 4.6% to close at 25.97 on the stock market today. Palantir stock has surged 256% in 2020.
Zelnick noted the upcoming expiration of Palantir’s lockup period following its initial public offering. The lockup agreement on insiders selling Palantir stock expires in mid-February.
Palantir Stock: IPO Lockup Period Expiring Could Lead To Big Sales
“About 80% of shares outstanding will be free to trade on the third trading day after fourth-quarter results,” Zelnick added. “We expect significant (Palantir stock) supply to come to market.”
Palantir sells data analytics software primarily to U.S. government agencies. Further, the company recently won a large contract from the Food and Drug Administration.
In addition, Zelnick noted that 20 customers account for about 60% of revenue.
Further, Palantir stock aims to grow its commercial business. The software maker also aims to expand into health care, energy, and manufacturing sectors.
Palantir stock launched a direct listing on Sept. 30 priced at 7.25 a share. In a traditional IPO, companies create new shares, underwrite them and sell them to the public. But a direct listing creates no new shares and sells only existing, outstanding shares with no underwriters involved.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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