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Why Palantir reversed course on Friday

What happened

Palantir Technologies (NYSE: PLTR) stocks have been booming recently, with 50% for the week and 170% for the month. The software and data company processed data with a hot start on Friday morning, winning as much as 15%, but then sank after a well-known short selling seller issued a stock warning.

So what

Palantir, a software and data company co-founded by Peter Thiel, went public in late September and really started to jump higher in late October. Shares have now risen more than 200% since their debut, with investors optimistic that Palantir’s advanced data analysis tools will continue to gain popularity among government and commercial clients.

Illustration of a man unlocking a cloud network

Image source: Getty Images.

This type of meteorite rise tends to attract the attention of short sellers; and sure enough, on Friday Citron Research issued a statement calling for the shares “no longer shares, but a full casino” and saying that “it doesn’t take a crystal ball to know that this will return to Arda “. (Arda is the name of the Earth in The Lord of the Rings, the novel that is also the source of Palantir’s name.)

Shares of Palantir reacted by reversing a strong opening and trading as much as 10% for the day before recovering to some extent to close 4.8%. Citron said it was initiating a short with a target price of $ 20 per share, well below Friday’s closing price of $ 27.66.

Now what

Investors should not need a short seller to tell them that Palantir shares are ahead of Palantir. The recent rise in the stock market estimates Palantir at more than $ 50 billion, or 50 times the company’s expected revenue for 2020.

Given that Palantir relies on the government for a significant portion of its sales and that other publicly traded government service companies trade multiple sales of less than three times, following Palantir will lead to some skepticism.

Bulls may argue that Palantir’s superior technology will help it appeal to commercial customers over time and should allow for higher odds. This may be correct. But Palantir has also been criticized for the government’s work, which could limit interest in the shares.

There is a certain value in this company and I would note that even at the target starting price of Citron the shares will still have a high ratio. But with all the great technology that Palantir has, the company has not yet figured out how to defy the laws of gravity, and given the recent leap, some retreat should come as no surprise.

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