Valuation risks and slowing fundamentals could drive significant downside for shares of Palantir , according to RBC Capital Markets. Ahead of the software analytics company’s earnings report on Monday, the bank maintained its underperform rating and $50 price target. That implies that the stock could plunge 70%. A retail investor favorite, Palantir have surged a stunning 121% over the past 12 months. But analyst Rishi Jaluria noted that the stock has shed 9% over the past three months. PLTR 1Y mountain PLTR 1Y chart Still, Jaluria said the risk-reward ratio looks unfavorable for Palantir at its current level. “We cannot rationalize why Palantir is the most expensive name in our software coverage. Absent a substantial beat-and-raise quarter elevating the NT growth trajectory, valuation seems unsustainable,” the analyst wrote. Another headwind for the stock, Jaluria said, is that RBC’s estimated government tracker suggests a decrease in qualified contract value and net new annual contract value for Palantir. That means that not only does Palantir have fewer late-stage deals in the pipeline now, but it also isn’t adding as much revenue as expected. The analyst added that recent checks suggest skepticism around the durability of Palantir’s enterprise customers on the commercial side, who appear to be reassessing or moving off of the company. “We’ll be looking for any evidence of a turnaround in commercial (improvements in NRR, or signs of meaningful monetization from AIP). We remain cautious on Commercial growth given high levels of competition,” Jaluria wrote. He also pointed to heightened retail investor discontent as another potential headwind. Jaluria said that retail investors increasingly have raised questions about Palantir’s longer term goals and its plans to increase revenue. “With Palantir’s ~$6B cash balance, we think retail investors may be starting to become frustrated by the absence of some form of capital return,” the analyst said. “Further lack of clear strategy on this front, in addition to rising concerns around privacy and ethics, could lead to multiple compression, in our view.”
