shares have had a wild ride in the public market.
The data-analytics software company (ticker: PLTR) direct listed on the New York Stock Exchange in mid-September, opening for trade at $10. The stock drifted at that level at first, only to began levitating in late October, soaring as high as $33.50.
The stock closed Thursday at $27.23, up 170% from the IPO, giving the stock a valuation of about $50 billion that Credit Suisse analyst Brad Zelnick considers untenable. Friday, he cut his rating on the stock to Underperform from Neutral, while listing his target for the price to $17, from $13.
“We see valuation disconnected from fundamentals with the stock now trading over 50% above our previous blue sky scenario,” he wrote in a research note. “To be clear, we continue to believe Palantir offers a unique data analytics platform, helping organizations solve some of the most complex challenges in the world—including those related to the fight against Covid-19.”
Still, with the stock trading at 46 times estimated 2021 revenue, the risk is to the downside, he said. And Zelnick sees multiple risks.
For starters, he noted, Palantir generally signs multimillion-dollar contracts, while businesses are giving more scrutiny to large deals. He pointed to a disappointing recent earnings report from the analytics company Splunk as a case in point. At the same time, Zelnick said, the business is highly concentrated, with 20 customers accounting for about 60% of revenue, making Palantir reliant on “large, lumpy deals.”
Zelnick also reminded investors that 80% of the shares outstanding will be unlocked and free to trade on the third trading day after the company reports its fourth-quarter earnings. “We expect significant supply to come to market,” he writes.
The analyst also has governance and reputation worries about Palantir.
“Palantir is unapologetic in its support of its clients, which has, at times—rightly or wrongly—led to unfavorable press/protests,” he wrote, alluding to the company’s frequent work with intelligence agencies.
“Further, its unique capital structure effectively creates a controlled company with three of the company’s founders indefinitely controlling just under 50% of voting rights,” he said. “As supply of the stock comes to market, we see these concerns potentially limiting the addressable institutional shareholder base.”
Palantir on Friday is down 3.2%, to $26.37.
Write to Eric J. Savitz at email@example.com