Palantir Surges After Earnings — But Analysts Are Unconvinced

A favorite of intelligence agencies and anyone in need of big data analytics, Palantir (NYSE: PLTR) has been in the center of attention for quite some time now. Institutional investors were generally lukewarm on the stock, while retail investors tended toward the bullish side.

Since mid-2023, PLTR has been on a roll — each quarterly earnings report posted by the company since then has seen at least a double-digit earnings beat. That streak continued on November 4th with the company’s Q3 2024 earnings call.

At present, Palantir stock is trading at a price of $51.13, having secured impressive gains of +208.38% on a year-to-date (YTD) basis.

PLTR stock price chart, courtesy TradingView

The latest earnings call was unequivocally impressive — overall revenues grew by 30% compared to this time last year. With U.S. business revenue growth leading the charge at a 44% increase year-over-year (YoY), it would seem like PLTR has successfully silenced one of the main arguments against the company — its hitherto highly-concentrated revenue stream.

Earnings per share (EPS) came in at $0.10 — outperforming consensus estimates of $0.09, while customer count grew to 629, a 39% YoY increase.

However, the crux of the argument against investing in PLTR — the company’s high valuation, remains. At current prices, the stock is trading at an absolutely massive P/E ratio of 232.41x — roughly ten times higher than the wider market average of 23.69x. Palantir’s peers in the software infrastructure industry have an average P/E ratio of 34.72x.

The stock is extremely expensive — sure, it does possess a competitive advantage as a provider of cutting-edge solutions, but there are legitimate doubts as to how much room for growth remains. The company’s earnings are forecast to grow at a rate of 7.23% per year — below industry averages of 11.43% and wider market averages of 19.47%.

On the bright side, the balance sheet is healthy — the analytics firm has a debt-to-equity ratio of just 0.26, with healthy profit margins at 18%, up from just 6.9% last year.

Analysts remain unconvinced, however — the stock is a consensus “Hold” according to Wall Street researchers. 

Out of the 14 analysts who track the company and issue ratings for its stock, 2 rate it a “Strong Buy”, 2 rate it a “Buy”, 6 rate the stock a “Hold”, with 2 ratings each for “Sell” and “Strong Sell”. The average 12-month price forecast currently sits at $30.07 — a figure that equates to a significant -41.19% downside.

A day after the release of the earnings call, three analysts revised their price targets. While all three increased their forecasts, none issued a positive rating — or even a price target that is above PLTR’s current price.

For some investors holding PLTR stock, it may be worth considering reduced exposure; to quote Mizuho’s Matthew Broome, a good quarter notwithstanding, valuation cannot and should not be irrelevant when assessing a stock.

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