On paper, a big data analytics giant Palantir Technologies Inc (NASDAQ:PLTR) continues to represent one of the strongest statistical performances among large publicly traded companies. Since the beginning of the year, PLTR shares are up more than 152%. Nevertheless, security recently saw a sudden drop. Furthermore, Tuesday’s after-hours session implies that there may be more volatility lurking in the wings, raising concerns among investors.
What makes the matter so troubling for market participants is that Palantir earlier reported better-than-expected third-quarter financial results. After Monday’s close, the technology specialist reported revenue of $1.18 billion, surpassing the Wall Street analyst consensus target of $1.09 billion. Additionally, the artificial intelligence-based software company posted adjusted earnings of 21 cents per share, ahead of calls for 17 cents per share.
As if that wasn’t enough, management also announced that fourth-quarter revenue would be between $1.327 billion and $1.331 billion. This distribution of expected outcomes exceeded the consensus view of $1.19 billion. Additionally, Palantir raised its full-year guidance, announcing expected revenue from $4.396 billion to $4.4 billion. This is an increase from the previous expectation of $4.14 billion to $4.15 billion.
Notably, analysts were looking at full-year revenue of just $4.17 billion. With such strong results and robust confidence in its future prospects, what caused PLTR stock’s decline?
Analysts say it’s possible the stock price has simply accelerated too quickly in too short a timeframe. Goldman Sachs analyst Gabriela Borges believes that PLTR’s muted response comes from “high expectations” after several strong quarters. MacroVisor Analyst Ayesha Tariq points the finger at changing market conditions, with investors mulling over richly valued technology stocks.
To be sure, valuation Ratios do not represent universal truth claims, so they should be taken with a grain of salt. However, from a strictly psychological perspective, it can be difficult for investors to ignore the raw numbers. For example, PLTR stock now trades for more than 217 times forward earnings. It also trades at more than 137 times prior-year sales.
Again, these numbers need context, as there is no standard benchmark to absolutely determine whether a security is overvalued or not. Still, with such a significant jump in relative value, it’s understandable that some investors are concerned about excessive risk.
The Direxion ETFs: Because market participants on both sides of the table are eager to speculate, financial services provider Direxion is offering a few relevant offsetting products. For optimistic traders, the Direxion Daily PLTR Bull 2X Stock (NASDAQ:PLTU) tracks 200% of the daily performance of PLTR stock. For pessimists the Direxion Daily PLTR Bear 1X shares (NASDAQ:PLTD) tracks 100% of the inverse performance of its namesake security.
In both cases, convenience is the main selling point. Normally, traders interested in leveraged or inverse positions should enter the options market. However, certain derivative or synthetic strategies involve complexities that may not suit the interests of every investor. Direxion ETFs, on the other hand, are simple, debit-based transactions that function much the same as any other publicly traded security.
Yet familiarity does not mean that there are no risks. For starters, leveraged and inverse funds tend to be more volatile than standard instruments that track benchmark indices like the Nasdaq Composite. Second, Direxion ETFs pose nuanced risks, with illiquidity being a potential concern. Finally, these funds are designed for exposure of up to one day. If this recommended period is exceeded, investors may be exposed to positional decay due to the daily compounding effect.
The PLTU ETF: Since the beginning of the year, the PLTU ETF has gained more than 285%. Over the past six months, the fund is up almost 94%.
- Currently, PLTU’s price action is solid and above the 50- and 200-day moving averages. However, recent volatility has forced the ETF to sit atop its 20-day exponential moving average.
- A concern is the steady erosion of volume. Normally, rising price action should be confirmed by rising volume, which is not happening here.
The PLTD ETF: From its opening in January, the PLTD ETF is down nearly 73%. Over the past six months, the inverse fund has fallen by almost 42%.
- Unlike the bull fund, PLTD’s price action is firmly below the 50 and 200 DMAs. However, it has rebelled against the 20-day EMA in recent sessions.
- What’s intriguing here is the volume. In contrast to the PLTU, the PLTD ETF has witnessed a notable increase in capital inflows.
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