One good company evaluation step is to review Wall Street analysts' one-year price target. Analysts aren't always right, but their estimates might help you evaluate a stock. The average price objective for Palantir Technologies (NYSE: PLTR) from 19 CNN analysts is $19.50. That's a big drop from the stock's current $23. So, is Wall Street right?
Palantir's AI software makes it a popular investment. Built from scratch, the startup provides customisable AI solutions for government usage. Palantir now sells to corporations and boasts world-class AI.
Its latest breakthrough, AIP (artificial intelligence platform), lets organizations construct their own generative AI model without sharing confidential data with OpenAI's ChatGPT or Alphabet's Gemini. Palantir's AIP platform is driving stock excitement due to exceptional demand.
Palantir also predicted 20% revenue growth of $2.66 billion in 2024, up from 17% in 2023. The stock rose after earnings due to those impressive numbers.
Much of it involves obsolete projections. Some analysts still think Palantir is a $5 stock. Many analysts have adjusted their price targets post-earnings to a figure below its current price, showing they've considered the recent report and aren't optimistic.
This look at analyst price targets is fascinating and important for research, but not the only item to examine. Investors must determine if a stock is excessively expensive. I think Palantir stock is overvalued.
I'll value Palantir using its price-to-sales (P/S) ratio since it's still striving toward profitability. At 26 times revenue, Palantir is a premium stock, especially when CrowdStrike (27 times sales) and The Trade Desk (22 times sales) are expanding 35% and 24% quicker.
Palantir would sell for 80 times earnings if it could instantly achieve a 30% profit margin, like Adobe. In spite of its 20% growth, Palantir is an expensive stock that will take time to reach a respectable P/E. Adobe's average P/E ratio since 2023 has been 44, so I'll use that to value Palantir's stock if completely profitable.
If Palantir maintains 20% annual growth for four years and a 30% profit margin, the stock would trade for 46 times earnings at today's pricing. With optimal profitability and excellent growth, buying Palantir now would cost you three years of stock returns. If Palantir sustains this 20% growth rate for five years or longer, the company may be properly valued and rise in price, making it a buy now.
Palantir's stock price would rise 43% if it grows 20% for five years, earns 30%, and is valued at 46 times earnings. Palantir's five-year growth determines whether to purchase or sell. When it doesn't grow 20% or more for three years, it's too pricey. If it can do that for five years, you can buy Palantir shares today if you plan to hold them. I'll pass at today's prices.
stay turned for development