Why Palantir Technologies Stock Rallied on Wednesday

Wall Street is growing more optimistic following a recent decline in stock prices.

Palantir Technologies (PLTR 5.64%) saw its stock price surge on Wednesday, rising as much as 6.8%. By 3:21 p.m. ET, the stock remained up 6%.

The increase in the company’s stock can largely be attributed to renewed interest from Wall Street analysts.

A Change in Sentiment

Palantir had experienced an incredible run, reaching a staggering gain of 1,250% over the two years leading up to its peak last month. However, since that high point, the stock has faced a significant drop, plunging as much as 32%. This downturn presents a possible opportunity for investors.

On Wednesday, William Blair analyst Louie DiPalma, who has historically been skeptical about Palantir, changed his stance. He upgraded the stock from an underperform (sell) rating to a market perform (hold) rating, although he did not provide a specific price target. DiPalma cited a notable decline of around 33% following the Department of Government Efficiency's review, which contributed to the stock's fall from $125 to $84 over the past three weeks.

Despite noting that the stock is still at risk of a significant decline due to potential delays in government contracts – which could bring downside risks of more than 40% – DiPalma acknowledged some positive developments. He highlighted Palantir's strong revenue growth and improving operating margins, asserting that their margins are the highest in the software industry. In a rare admission, he conceded, "We did not fully appreciate Palantir's operating leverage and ability to grow with minimal hiring."

Is Palantir a Good Investment?

Currently, Palantir's stock trades at 160 times forward earnings and 56 times forward sales, indicating that it may not be considered cheap. However, the stock’s forward price/earnings-to-growth (PEG) ratio has recently fallen to 0.8, which is seen as a sign of fair valuation when under 1.

Given its recent price drop and the potential for continued growth, it may be an opportune time for investors to take a closer look at Palantir.

Note: This article was prepared without any financial affiliations or investment advice.

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