A Cautionary Tale: Palantir’s Skyrocketing Stock May Be Due for a Correction
Election Boost Fades Away
Palantir Technologies (NASDAQ: PLTR) has been one of the biggest winners of the recent election, with its stock nearly quadrupling in value year to date. However, this meteoric rise may soon come to an end, as many on Wall Street predict a sharp decline in the company’s stock price.
Analysts Sound the Alarm
The average 12-month price target for Palantir stands at $39.57, a staggering 40% below its current share price. While one particularly bearish analyst has set a target of $11, the overall sentiment among analysts is decidedly negative. Seven out of 19 analysts surveyed rate Palantir as an “underperform” or “sell,” while only four recommend buying the stock.
Strong Business, Weak Valuation
Despite Palantir’s impressive business performance, with revenue soaring 30% year over year and GAAP earnings per share doubling, analysts are concerned about the stock’s valuation. The company’s shares currently trade at nearly 145 times forward earnings, a multiple that may be unsustainable. Jefferies’ recent downgrade of the stock was primarily due to concerns about an unsupportable valuation.
Growth Prospects
While Palantir’s technology is likely to enjoy strong demand, especially in the government sector, its commercial business is also thriving. The company’s growth prospects are undoubtedly impressive, but the question remains whether they can justify a forward earnings multiple of 145.
A Warning Sign
Palantir’s stock is priced for perfection, and companies rarely execute flawlessly. With the company’s valuation already stretched, even a minor hiccup could send the stock tumbling. Investors would do well to exercise caution and consider the risks before jumping into Palantir.
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