Bulls vs. Bears: Is Palantir valuation justifiable?

Shares of Palantir Technologies (NYSE:PLTR) climbed nearly 40% this week after the enterprise software company’s Q3 2024 results exceeded Wall Street forecasts. Its full-year outlook, revised upwards due mainly to stronger U.S. commercial revenue, stood above consensus, exciting investors.

However, Jefferies and Argus downgraded the stock to Hold, noting, among other things, concerns over its valuation. The Denver, Colorado-based IT company trades at ~154x in terms of its 2024 adjusted earnings compared to its five-year average of ~120x and the sector median of ~25X. Recent commentary from Seeking Alpha analysts suggests various views on Palantir’s (NYSE:PLTR) valuation.

The Bulls

“Despite high traditional valuation metrics, Palantir’s exceptional growth justifies a premium, with forward EPS expected to grow 97.51% YoY,” wrote Noah’s Arc Capital Management in “Palantir Q3: Earnings Deep Dive After The Election.” “I believe you have to pay for exceptional growth, and Palantir is no exception to this rule.”

“When stocks run up like PLTR has, they can let their valuations get away from them. Compared to its competitors, PLTR carries a high PE ratio,” argued John Bowman in “Palantir Is Still Full Of Potential (Rating Upgrade)” With the kind of growth that it is projecting, it makes sense to value it above other, slower enterprises.”

“At $100 billion in market cap, and to continue driving future returns, the company needs to grow its FCF by several multiples,” added SA Investing Group leader The Value Portfolio in “Palantir At Its Highs Is Still A Once In A Decade Opportunity.” “The company has managed to quickly become profitable, and it’s generating strong and growing FCF.”

The Bears

“At ~40x P/S, Palantir stock looks worse than dead money despite assuming above consensus future revenue growth and margins,” opined SA Investing Group leader Ahan Vashi in “Palantir: Valuation Looks Detached From Business Realities, A Tactical Sell.” “Like it or not, PLTR stock is bubblicious. And its latest ER pop is another opportunity for shareholders to book some gains.”

“Despite strong governance and growth, Palantir’s valuation is overextended, reminiscent of the .com boom, suggesting caution for serious investors,” wrote Oliver Rodzianko in “Palantir’s Q3 Results Delivered, But A Major Decline May Lie Ahead.” “Serious investors should wait for a significant decline before buying, as speculation surrounding Palantir stock makes it a risky investment at the present valuation.”

“Palantir Technologies’ forward adjusted earnings multiple of more than 140x suggests the market has gone FOMO, understating downside risks,” argued SA Investing Group leader JR Research in “Palantir: Avoid Being The Latecomer To The Party.” “When the market turns FOMO (which is also justified by PLTR’s price action), it’s time to get out.”