In the lexicon of story stocks, Palantir (PLTR) is undoubtedly one of the more recent entrants. A three-year run in which the shares surged nearly 1,870% confirms as much. As recently as early last November, Palantir traded around $55. Tack $100 onto that as of September 4. All of that is to say that betting against the technology stock has been dangerous. So it’s understandable traders are glossing over the Direxion Daily PLTR Bear 1X Shares (PLTD).
However, the time could be appropriate for short-term traders to give PLTD a look. Those who did were rewarded over the past month, as Palantir dipped more than 10%. PLTD attempts to deliver the daily inverse performance of the underlying stock. So if Palantir declines by 1% on a given day, PLTD should rise by that amount.
Points to remember: PLTD isn’t a long-term investment. Rather, the ETF is best used over short holding periods measured in days. Second, Palantir has not been hospitable to short-sellers, but that situation could change, albeit briefly, over the near term.
PLTD Points of Allure
It’s often said that valuation alone isn’t a reason to buy or sell a stock. For a while, that outlook worked with Palantir, but that may be shifting. The company delivered $1 billion in second-quarter sales — an accomplishment indeed. But it’s one that makes it difficult to justify a market capitalization of about $369 billion. Alone, that multiple could increase the intrigue around PLTD.
There are other reasons risk-tolerant traders may cozy up to the inverse ETF. Critics point to a high level of revenue concentration, with less than two dozen customers accounting for a massive percentage of the company’s sales. Somewhat related to that point is the criticism that Palantir is nothing more than a government contractor masquerading as a high-tech AI entity.
Regarding PLTD, that critique is pertinent. Because if it’s accurate, or investors believe it to be, it could be confirmation that Palantir is overvalued. Another factor that could work in favor of PLTD is that by some estimates, 45%-50% of Palantir shares are owned by retail investors, which could be rapidly shaken out of the stock amid big declines. That would give rise to PLTD.
“While we believe the market price has disconnected from our core intrinsic methodology, we acknowledge that momentum could continue to fuel Palantir shares higher,” noted Morningstar’s Mark Giarelli. “Chasing momentum here is risky—any slowdown will likely result in multiple compression that wipes out returns.”
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