Palantir Shares Drop 5.08% Amid High Volatility and Concerns Over Overvaluation

Technical Analysis

Palantir Technologies Inc. (NASDAQ: PLTR) saw its shares close at $72.46 on December 9, 2024, after a 5.08% drop from a recent all-time high of $80.91. The stock displayed significant volatility with a recorded low of $71.05. Its volume hit 166.14 million shares, substantially exceeding the average volume of 71.27 million, indicating heightened trading activity.

The Relative Strength Index (RSI14) at 72 suggests that the stock is currently overbought, a typical signal that momentum might reverse or stabilize. The Moving Average Convergence Divergence (MACD) at 7.14 remains positive, albeit watching for potential divergence given recent price drops. Short-term support sits at $65.81, with more immediate resistance at $76.34. The stop-loss level is identified at $69.21.

The current price is well above both the 50-day ($51.67) and 200-day ($32.52) moving averages, confirming a strong upward trend despite heightened volatility, as reflected by the Average True Range (ATR) of $5.13.

Fundamental Analysis

Palantir's recent expansion of its contract with the U.S. Special Operations Command underscores the company's strong ties and reliance on government contracts. This extension was a crucial development, likely contributing to reaching the recent all-time high. However, the stock's Price-to-Earnings (PE) ratio of 362.3 is notably high, indicating that the stock may be overvalued compared to earnings. This concern is mirrored by the latest pullback in price.

The stock’s market capitalization stands at $165.07 billion. Its current EPS over the trailing twelve months (TTM) is $0.20. The discounted cash flow (DCF) valuation at approximately $0.63 implies the stock might be traded significantly above its intrinsic value, raising concerns about potential future corrections.

Analyst consensus places the target price median at $35, much lower than the company's current market price, with a consensus rating of 'Hold' based on a distribution of 5 buys, 6 holds, and 3 sells.

Short-term and Long-term Predictions

For the next trading day and the upcoming week, due to the high volatility and overbought technical condition, PLTR could experience further corrections or stabilization. A strong support level at $65.81 serves as a potential bounce-back point if the declines continue. Notably, any downward pressure might find additional momentum given market reactions to high PE ratios and overvaluation insights.

In the long term, Palantir’s robust contract portfolio with government entities positions it well for sustained growth. However, the current stock price may not reflect intrinsic value, suggesting potential overvaluation that could hinder long-term capital appreciation until earnings catch up with valuations.

Overall Evaluation

Given its current overvaluation, high volatility, and the mixed fundamental outlook, Palantir Technologies Inc. fits the 'Hold' category. While its government contracts solidify the long-term business outlook, immediate pricing does not provide a compelling entry point for new positions. Investors may want to closely monitor future earnings announcements in February and potential market volatility adjustments before assessing any shift in trading strategy.