Palantir Technologies (PLTR) is facing significant downward pressure, with its stock down 29% from its all-time high. Despite impressive revenue growth—119% over the last three years and 70% year-over-year last quarter—its valuation appears stretched, trading at a price-to-sales (P/S) ratio of 85, far above the typical 10 for highly profitable software firms. This discrepancy raises concerns for investors considering entry points in the stock.
The rapid growth in Palantir’s client base, particularly among U.S. government and large enterprises, has not been enough to justify its current market cap of $353 billion. If the stock were to normalize to peer valuations, analysts suggest it could plummet by 80%, potentially dropping to a market cap of around $70.6 billion. Additionally, ongoing shareholder dilution—28% over the past five years—could further exacerbate the situation, making the stock a risky proposition for new investors.
In summary, while Palantir’s growth story is compelling, its inflated valuation and potential for further dilution create significant risks, suggesting that investors should tread cautiously.
Source: fool.com