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    Palantir Stock Investors In Panic Amid Potential Red Flag

    Image Source: TY Lim / Shutterstock

    Palantir (NYSE: PLTR) has seen remarkable growth in 2024, appreciating by more than 160% year-to-date. However, there are significant concerns related to the software giant’s valuation that may jeopardize this positive trend in the future.

    As of Thursday, October 24, PLTR’s share price was $43.58, reflecting a 2.3% increase at the time of this report. The stock has gained over 18% in the past month.

    Concerns with PLTR

    Amidst this surge, Palantir faces scrutiny regarding its ability to maintain its elevated stock price.

    The stock currently trades at 40 times its sales, which is considered high for a company still in the growth phase. This Price-to-Sales (P/S) ratio implies that Palantir’s market capitalization is 40 times its annual revenue, a figure reminiscent of the inflated valuations seen during the 2022 SaaS bubble that ultimately collapsed.

    Such a steep valuation suggests that future growth has already been factored into the current stock price, leaving limited potential for appreciation for new investors unless the company achieves remarkable growth.

    Indeed, analysts have raised alarms about the valuation, noting a potential exhaustion in the stock’s recent price movements, with indicators such as the Relative Strength Index (RSI) pointing to this fatigue.

    Moreover, according to reports by Finbold, analyst Jake Ruth noted that Palantir’s valuation above $40 comes off as ‘very expensive’ and warned that it is unrealistic to expect continued multiple expansions indefinitely.

    While Palantir has seen stock performance akin to other AI-driven firms such as Nvidia (NASDAQ: NVDA), its projected growth rate of 21-24% for 2024 and 2025 appears less robust than the consistent 21.4% annual revenue growth Nvidia has maintained over the past five years. This discrepancy introduces uncertainty regarding Palantir’s capacity to satisfy high market expectations.

    Another issue is Palantir’s limited addressable market. The average annual revenue per customer in the U.S. commercial sector hovers around $2.15 million, which confines its clientele largely to major corporations. This could hinder future expansion and pose challenges for justifying the company’s lofty valuation.

    Competition is another significant factor, particularly for Palantir’s AI Platform (AIP), which is competing against other industry players such as Google Cloud.

    Future Outlook for PLTR Stock Price

    The upcoming earnings report scheduled for November 4 is anticipated to be a crucial catalyst for the Palantir stock outlook.

    Investment advisor Michael Vodicka expressed in an X post on October 24 that strong results could likely propel PLTR towards a $50 target, although the stock must secure a foothold above $45 first.

    Despite the concerns surrounding Palantir’s valuation, some analysts remain optimistic. Daniel Ives from Wedbush raised his price target to $45 with an ‘Outperform’ rating, while Mariana Perez of Bank of America (NYSE: BAC) set a target of $50 and issued a ‘Buy’ recommendation.

    Image Source: TY Lim / Shutterstock

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