PLTR Stock Alert: Sell Into the Next Round of Strength

Palantir Technologies (NYSE:PLTR) stock has pulled back since December and appears range-bound. However, this may be a calm before the storm, ahead of the next big move. Shares may surge when the company announces earnings next month, similar to the surge after the last quarterly release.

Yet while this suggests now is not the time to sell, that doesn’t mean that another year of big gains is ahead. There’s still a risk of a serious reversal. With this, the next round of major strength for the shares won’t be a sign to “let it ride.” Rather, it will be a sign to take the money and run.

PLTR Stock Post-Earnings

When Palantir announced results for the September quarter back on Nov. 2, investors reacted positively. Shares soared over 20% higher on earnings day and kept on gaining in subsequent trading days.

While the company’s results just slightly beat revenue and earnings forecasts, the PLTR stock post-earnings rally made sense for multiple reasons. First, year-over-year revenue growth of 17% represented a resurgence in growth. During the June quarter, year-over-year revenue growth came in at only 13%.

Not only that, Palantir reported its fourth consecutive quarter of GAAP profitability. That makes PLTR eligible to join the S&P 500 index. The company also reported a big year-over-year increase in its commercial customer count. The market was pleased with Palantir’s latest AI Platform updates.

Next month, it’s possible that PLTR reports similar figures (re-accelerating growth, continued increases in its commercial book of business). Another profitable quarter may increase excitement about PLTR’s potential inclusion in the S&P 500. All of this could drive another double-digit post-earnings rally for shares.

Why Then, is it Best to Sell After the Next Rip?

I know what you’re thinking. If PLTR stock soars again on the heels of a well-received earnings release, why sell? Yes, it may seem at first that factors like a continued growth resurgence could result in another strong year of price performance for shares.

With this, you may think selling now could prove to be a regrettable move in hindsight. Palantir’s future performance is uncertain despite expectations of positive news.

Although Palantir is experiencing a growth recovery, as Jeffries’ Brent Thill argued in his market-moving downgrade of PLTR (released earlier this month), it may take time for demand to fully recover. A return to prior levels of revenue growth (30% and higher) isn’t likely to happen anytime soon.

As the year unfolds, revenue and earnings growth may keep re-accelerating, but at a more modest pace. This could, in turn, have a major negative impact on sentiment. The market could go from anticipating a further string of earnings beat to conceding that they went overboard, and a correction is due.

Bottom Line: Take Profit Ahead or Right After Earnings

While Palantir is experiencing a big increase in commercial market demand (as seen from its growing customer count), results for 2023 could still come in line with sell-side expectations: revenue growth of around 20% and earnings growth in the 16% range.

While nothing to sneeze at, this level of growth may not be enough to sustain PLTR’s current valuation (57 times forward earnings).
Even if a moderate de-rating occurs (say, to a forward multiple in the 30-40 range, on par with other profitable AI stocks), that would mean a retreat back to high single-digit/low-teens prices, representing a considerable drop compared to current prices.

Still, as PLTR stock could first re-hit $20 per share, before slumping back to below $10 per share, in lieu of taking profit today, plan to make your exit during the next big rally, whether one happens ahead of or right after earnings.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.