Since its public debut in late 2020, the shares of Palantir Technologies have been a darling among retail investors, but the company has plenty of skeptics on Wall Street. Critics are waiting for the right time.
As of market close, Palantir stock was down 6.7%, caught up in another steep slide for high-growth but richly valued stocks. The all-time high of Palantir was reached in early 2021.
The image is from the same source.
So what?
The catalyst for this most recent dip was a rise in interest rates. The minutes from the Federal Reserve's last meeting show that the central bank is considering raising interest rates sooner than later. The yield on the 10-year Treasury closed in on the 1.9% level it reached before the start of the epidemic.
Higher interest rates lower the value of a company's future cash flows, which in turn lowers the value of the stock.
What now?
This doesn't mean that the business is doomed. As a leader in next-gen software analytics for large enterprises, Palantir has a bright future. The market's appetite for richly valued stocks has been spoiled by growing pains. Currently, the shares are trading for 21 times expected revenue-to-enterprise value.
The narrative will eventually change and the stock will resume rising if Palantir can continue to expand. It's often overlooked that Palantir is profitable on a free cash flow basis, even though it spends a lot on development and marketing. This company's long-term payoff is also good news.
