Is Palantir Technologies Stock Overvalued Or Undervalued?

Palantir Technologies Inc PLTR shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 10%.

But after gaining 145.1% in the last year, investors may still be wondering if there’s any value left in Palantir stock.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is at about 29, nearly double its long-term average of 15.9.

Palantir doesn’t have a PE ratio because the company is not profitable. In the most recent quarter, Palantir reported a net loss of $138.5 million.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. Palantir's forward earnings multiple of 124.6 is still more than six times higher than the S&P 500’s, making Palantir's stock look overvalued.

Palantir’s forward PE ratio is also more than four times higher than its technology sector peers, which are averaging a 26.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 0.9. Once again, without positive earnings, Plantir doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.15, well above its long-term average of 1.62. Palantir’s PS ratio is 37.7, more than 10 times the S&P 500 average as a whole. Palantir’s PS ratio is also up 174.8% over the past year, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts see no value in Palantir stock over the next 12 months. The average analyst price target among the seven analysts covering Palantir is $25, suggesting 3.2% downside from current levels.

The Verdict: At its current price, Palantir stock appears to be extremely overvalued based on a sampling of common fundamental valuation metrics.