Palantir bulls should take latest sell-off 'as a gift,' trader says

Palantir's stock has had a painful week.

Share of the data and software company plunged more than 12% on Wednesday following a downgrade from Morgan Stanley, pushing Palantir's week-to-date decline to nearly 19%.

Morgan Stanley analysts took their rating to underweight from equal weight, saying Palantir's valuation had gotten ahead of itself since the company's late September direct listing.

Palantir is still up almost 137% since its Sept. 30 debut.

"This is, to me, the prototypical stock of 2020," John Petrides, portfolio manager at Tocqueville Asset Management, told CNBC's "Trading Nation" on Wednesday.

"It's a growthy tech company that has a lot of momentum behind it and that pushed the stock higher," he said. "If you like the stock, well, then this sell-off today is a gift. If you don't like the stock, you want to wait for a bigger sell-off."

Petrides himself wasn't too keen on the stock, noting that it is trading at roughly 33 times expected sales for 2022, which he said was "extreme."

"It's trading at a massive premium to other software-as-a-service type of companies," he said. "The bull case is that they have government contracts that are sticky, but I think that's already priced into the stock when you're trading at 2x your peer group."

Danielle Shay, director of options at Simpler Trading, said Morgan Stanley's call was a bit "short-sighted."

"I'm looking at this as a five-to-10-year play as far as just buying and holding the stock," Shay said in the same "Trading Nation" interview.

"It's a leader in the data analysis space as well as AI," she said. "And yes, they have government contracts and they've had those contracts for a while, but they're completely ignoring the fact that this company is expanding into the private space and there are so many applications for this software that they haven't even done yet."

Shay suggested playing the stock directly or through the options market.

"Because of the amount of speculation that we've seen in this stock, the options premiums are really high, and you have the retail crowd that loves the stock and then you have the institutional crowd that keeps shorting it," Shay said.

Nearly 5% of Palantir's float was sold short as of Tuesday, according to FactSet.

"You have high [implied volatility], which gives you a great opportunity to sell some put credit spreads or just simply sell the puts on a day like [Wednesday], especially if you want to pick up the stock," Shay said. "Or you wait until it kind of bases out and consolidates again and then try to trade the short squeeze to the upside when it eventually comes."

Palantir was up 3.6% in Thursday's premarket.

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