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Why Palantir turned around the course on Friday

What happened

Palantir Technologies (NYSE: PLTR) stocks have been on a wild ride too late, rising 50% for the week and 170% for the month. The software and computer technology company got off to a warm start Friday morning, gaining as much as 15%, but then plunged after a prominent card seller issued a warning about the stock.

So what

Palantir, a software and data company founded by Peter Thiel, went public in late September and really started jumping higher in late October. The shares have now risen more than 200% since their debut, when investors were optimistic that Palantir’s sophisticated data analysis tools will continue to gain traction with public and commercial clients.

Illustration of a person unlocking a cloud network

Image Source: Getty Images.

That kind of meteoric rise tends to attract card seller’s attention; and certainly Citron Research tweeted on Friday a message calling the shares “no longer a stock but a full casino”, saying it “does not take a crystal ball to know that this will fall back to Arda.” (Arda is the name of the Earth in That Lord of the Rings, the novel, which is also the source of Palantir’s name.)

Palantir’s shares responded by turning a strong open and trading down as much as 10% for the day before recovering somewhat to close at 4.8%. Citron said it initiated a short with a target price of $ 20 per share. Stock, well below the stock’s $ 27.66 Friday closing price.

What now

Investors should not have needed a card seller to tell them that the Palantir share came ahead of the Palantir company. The recent rise in equities has the market valuing Palantir at more than $ 50 billion. Dollars or 50 times the company’s expected 2020 revenue.

Given that Palantir is dependent on the government for a significant portion of its sales and that other publicly traded public service companies trade at multiples below three times sales, Palantir’s run will lead to some skepticism.

The Bulls can argue that Palantir’s superior technology will help it appeal to commercial customers over time and should allow for a higher multiple. That could be correct. But Palantir is also the target of criticism over his government work, which may limit interest in the stock.

There is a certain value in this company and I would note that even at Citron’s target exit price, the stock would still have a high multiple. But for all the amazing technology Palantir has, the company has yet to figure out how to defy the laws of gravity, and given the recent rise higher, a kind of retreat should come as no surprise.

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