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, pointing to more 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.
READ MORE: Bitcoin Price at Risk as US Armada Arrives in Middle East as Attack Odds Jump
The stock has moved below the Weak, Stop & Reverse level of the Murrey Math Lines tool. Therefore, the most likely scenario is where it continues falling as sellers target the ultimate support level at $150 followed by the neckline of the H&S pattern at $147. More downside may see it drop to the extreme oversold level of $137.
PLTR stock chart | Source: TradingView
Valuation Concerns Remain Ahead of Earnings
One major reason why the PLTR stock price has crashed is that investors have dumped most software companies recently. A closer look shows that most stocks like ServiceNow, Adobe, Microsoft, and Intuit have all plunged in the past few months.
Another key reason is that Palantir is one of the most overvalued companies in Wall Street. At its peak last year, the company had a market capitalization of over $400 billion, a high premium for a company that is expected to generate $6.2 billion in revenue this year.
Palantir stock is still highly overvalued, considering that its forward price-to-earnings ratio is 228. In contrast, NVIDIA has a multiple of 40, while Microsoft and Google have 32 and 31, respectively.
Palantir’s premium valuation is mostly because the company’s commercial business continues to grow as companies from around the world embrace 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 doing better than analysts’ estimates, meaning that its revenue and earnings per share will be better than expected.
Therefore, the most likely scenario is where the Palantir stock price retreats after the upcoming earnings and then rebounds later this year as concerns about the company fade.
READ MORE: XRP Price Prediction: Is it a Buy as Ripple Lands at a Key Support?
