Shares of Palantir Technologies (PLTR) - Get Report were lower on Wednesday after analysts at Citi cut the software company to sell from neutral, citing concern about its valuation and growth prospects.
Citi analyst Tyler Radke called the stock "vulnerable" in 2021. Radke nonetheless increased his price target on the Denver company to $15 a share from $10.
Palantir shares at last check were down 2.3% to $25.58. The company went public at the end of September in a direct listing, which bypasses the usual IPO process in favor of enabling current holders to sell shares to the public.
Its reference price for the offering was $7.25 and it started trading at $10. In late November it traded as high as $33.50.
"Specifically we see risk around the lapping of covid-19-related contracts, which have the potential to become headwinds in second-half 2021 into 2022," Radke said.
"We are also more skeptical on the PLTR bull case in the commercial business, where there is optimism that PLTR’s simplified new products can drive an inflection in customer growth. Here, we see high levels of competition and the lack of investment by PLTR in the 'right areas' limiting success."
The firm sees slowing growth as a major factor that could weigh on the stock in the new year.
"The bull case for PLTR rests on the ability to significantly expand its small about 130- customer base via the commercial segment by selling a more modularized product portfolio, which reduces friction. While this may be the right strategy, we are skeptical that this will be successful," Radke wrote.
Citi identified Palantir's Technology Demo Day on Jan. 26 and its fourth-quarter earnings report in mid-February as the next catalysts for the company. The post-offering share-lockup period ends three days after its earnings release.