Palantir (PLTR) - Get Report was sliding Wednesday after a Morgan Stanley analyst downgraded shares of the data mining company to underweight from equal-weight, saying that "the list of outstanding investor questions remain largely unanswered."
Shares of the Denver-based company were falling 10.4% to $23.05 at last check.
"With PLTR up 155% since listing with very little change in the fundamental story, the risk/reward paradigm shifts decidedly negative for the shares," said analyst Keith Weiss, who raised his price target on the company's shares to $17 to $15.
After initiating coverage of Palantir in late October after its direct listing on Sept. 30, Weiss said he saw "a unique combination of revenue growth acceleration and rapid margin expansion undervalued by the market due to outstanding investor debates, most notably around whether Palantir was a 'true software company' or a less desirable consulting firm."
Weiss said he believes much of the incremental movement since third-quarter results are likely related to factors outside of fundamentals, including strong retail long-interest squeezing strong institutional short-interest.
The analyst noted that operating expenses decreased in the second quarter, which management said was mostly derived from efficiencies from the Apollo continuous delivery platform.
The question becomes, Weiss said, "whether management enters into FY21 under-invested for the growth required to sustain current levels (likely high 30%'s to low 40%'s revenue growth)."
"The other side of this outstanding debate is whether margin expansion can prove durable in the event of significantly ramped up investments to sustain growth – we look for margin expansion to slow to ~ 460bps/~190bps in FY21/FY22 as operating expense growth ramps up to +24% in both years to maintain top line momentum," Weiss said.
The analyst said he believes "the current valuation requires both sustained topline momentum / acceleration and margin expansion, an unlikely scenario."