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Palantir Stock: Earnings Ahead Amid Overvaluation Concerns

As Palantir Technologies prepares for its Q1 earnings on May 5, analysts ponder stock price movements post-report. The high valuation and missed expectations may lead to significant volatility.

Date: 
AI Rating:   4

Palantir Technologies is currently navigating a complicated landscape as it approaches its upcoming earnings report scheduled for May 5. Investors are keenly watching for potential price movements after the earnings call, where Palantir has historically shown a pattern of sharp rises or falls following earnings reports. Particularly notable are the dramatic price shifts that have occurred in three out of four quarters in 2024, showcasing a volatile market sentiment around this stock.

Management has projected a revenue growth rate of 36% for Q1, the same seen in Q4. Based on the company's history of under-promising and over-delivering, investors may have a reasonably optimistic outlook. However, on closer inspection, the expected growth does not alleviate the prevailing concerns about valuation metrics.

Palantir's premium pricing—a forward Price to Earnings (P/E) ratio nearing 167 and a Price to Sales (P/S) ratio of about 79—appear excessive. For comparison, typical software firms trade between 10 to 20 times sales. Such high valuations imply that future growth projections are already factored into the current stock price. This overflow of expectations creates a precarious scenario, especially with economic uncertainty influencing potential client spending.

Regarding customer metrics, Palantir has a restrictive customer base with only 711 commercial clients contributing $372 million in revenue during Q4. This translates to an average customer value of over $2 million, which raises concerns about widespread acceptance and scalability of their high-cost products.

With economic pessimism potentially dampening Palantir’s growth trajectory, and coupled with already high market valuations, there exists a heightened risk that the company will struggle to meet market expectations. Should the company report a slight miss on expected revenues or guidance, stock prices may react negatively, aligning with the sentiments that the stock is currently overpriced.

Stocks:  PLTR