What a difference a week can make! It was at this point last Friday that I stated that investors should stay the course. While I acknowledged that there were concerns of overvaluation, the bottom was this: “at this juncture, I see little reason based on the evidence to adopt a bearish stance on PLTR stock. Instead, while the equity is priced below the three-digit threshold, it could be an interesting long-term opportunity.”
Guess what, folks? We’re at three digits…boy, are we ever at three digits!
Still, with the euphoria fading from those who entered a position before the big breakout move — an event sparked by an outstanding fourth-quarter earnings print — the real difficult analysis begins. If PLTR stock was a buy between $80 and $90, can the same be said above $111?
Cathie Wood via her ARK Invest funds answered that question with a decisive “no.” Earlier this week, ARK dumped more than $65.95 million worth of PLTR stock, continuing a trend of divesting from the data analytics firm.
From a practical standpoint, Wood certainly appears sensible. Yes, analysts are projecting sales for fiscal 2025 to hit $3.78 billion, up over 32% from the prior year. However, the issue is that at this moment, PLTR stock trades hands for over 95X trailing-year revenue. In the third quarter last year, this metric was a much more manageable (but still lofty) 35.65X.
Without question, PLTR stock is scorching hot. Nevertheless, this status alone doesn’t negate its upside potential.
Perhaps the best way anyone can describe Palantir is that it’s a “FOMO” stock. An abbreviation for the fear of missing out, FOMO has been the catalyst for several meme plays and cryptocurrencies. In the case of PLTR, investors gravitate toward it like bees to flowers.
On a stochastic view — that is, devoid of any other context aside from the temporal — historical pricing data for PLTR stock reveals an upward bias. A position entered at the beginning of the week has a 55.51% chance of rising by the end of it. Over a four-week period, this metric slips only slightly to 53.57%.
However, the dynamic view — which accounts for unusual aberrations in the fear-greed continuum — truly articulates this upward tendency. This week, PLTR stock is on pace to post a one-week return of roughly 40%, assuming Friday closes at $112 (it should). Whenever PLTR generates a weekly return of 10% or greater, the long odds over the subsequent four-week period rise to 65.38%.
In other words, FOMO fuels additional speculation in PLTR stock. Therefore, it’s quite possible that shares could rise over the next few weeks despite the already-extraordinary performance. However, investors should keep in mind the caveat that the median return (under the positive outcome) over the aforementioned four-week period comes out to 7.83%.
Based on dynamic risk modeling, investors may be looking at a price target a bit shy of $121 by the options chain expiring March 7. Notably, there are several attractive bull call spreads for this expiration date with reasonable second-leg (short strike) targets.
For example, aggressive traders may consider the 115/118 bull spread, which puts $140 at risk for the chance to earn $160 or a payout of 114.29% should PLTR stock hit $118 or more.
