Renowned entrepreneur Peter Thiel, co-founder of PayPal and early backer of Meta Platforms, has made headlines by offloading over $1 billion worth of shares in Palantir Technologies, where he serves as chairman. This move comes on the heels of the company’s inclusion in the S&P 500 index. Thiel’s sale, executed through a pre-arranged trading plan, has sparked debate among investors about the wisdom of holding onto Palantir stock.
Despite its impressive growth trajectory, Palantir’s valuation has reached stratospheric heights, with shares trading at a staggering 87 times analysts’ projected 2025 earnings. This lofty valuation raises concerns about the stock’s vulnerability to even minor earnings misses, which could send the share price tumbling.
Palantir’s commercial customer base has grown exponentially, from 14 to 295, over the past four years, driven in part by the launch of its Artificial Intelligence Platform. The company’s operating margin has also expanded significantly, reaching 37% in the last quarter. However, even assuming continued robust growth, the current stock price appears difficult to justify.
Morningstar analyst Malik Ahmed Khan’s bullish forecast models 26% revenue growth and an operating margin expansion to the low 30s over the next five years. Yet, even under these optimistic assumptions, the fair value of the stock is estimated to be around $26 per share, a fraction of the current price.
While Palantir’s underlying business is undeniably strong, its stock has become increasingly expensive. Patient investors may ultimately reap rewards, but there may be more attractive investment opportunities available. It may be prudent to consider cashing out and reallocating resources to other growth stocks with more reasonable valuations.
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