Palantir stock price has suffered a harsh reversal in the past few months after falling by 25% from its highest level in November last year. PLTR plunged to a low of $157, its lowest level since November last year. It has formed a highly risky chart pattern, pointing to more downside ahead of its earnings next week.
Palantir Stock Price Technical Analysis Points to a Crash Into Earnings
The daily timeframe chart shows that the PLTR stock price peaked at $207 in November last year as demand for artificial intelligence companies surged.
Recently, however, the stock has formed a series of weak patterns, indicating additional downside in the near term. It formed a head-and-shoulders pattern, a common bearish reversal sign in technical analysis.
The stock has also formed a diamond reversal pattern, which, like the H&S, is a popular bearish reversal sign. It has also moved below the 50-day Exponential Moving Average (EMA) and the Supertrend indicator.
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The stock has moved below the Weak, Stop & Reverse level of the Murrey Math Lines tool. Therefore, the most likely scenario is that it continues to fall as sellers target the ultimate support level at $150, followed by the H&S pattern neckline at $147. Further downside may push it to the extreme oversold level of $137.
Valuation Concerns Remain Ahead of Earnings
One major reason the PLTR stock price has declined is that investors have recently dumped most software companies. A closer look shows that most stocks, including ServiceNow, Adobe, Microsoft, and Intuit, have declined over the past few months.
Another key reason is that Palantir is one of the most overvalued companies on Wall Street. At its peak last year, the company had a market capitalization of over $400 billion, a premium relative to its expected 2022 revenue of $6.2 billion.
Palantir stock remains highly overvalued, given its forward price-to-earnings ratio of 228. In contrast, NVIDIA has a multiple of 40, while Microsoft and Google have 32 and 31, respectively.
Palantir’s premium valuation is largely attributable to the continued growth of its commercial business as companies worldwide adopt its products. This trend means that Palantir is no longer just a military contractor.
The most recent results showed that its US commercial revenue rose by 121% YoY to $397 million, a trend that will continue as companies seek to gain an edge compared to their competitors. It added 204 clients paying over $1 million in the third quarter, 91 paying at least $5 million, and 53 paying $10 million.
Wall Street analysts believe that Palantir’s revenue continued to grow in the fourth quarter of last year. The average revenue estimate among analysts is $1.35 billion, up by 62% YoY, bringing its total revenue to $4.4 billion. It will then grow by 42% YoY to $6.28 billion this year.
Palantir has a long history of exceeding analysts’ estimates, indicating that its revenue and earnings per share will exceed expectations.
Therefore, the most likely scenario is that the Palantir stock price declines after the upcoming earnings report and then rebounds later this year as concerns about the company fade.
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