‘Don’t jump on the bandwagon,’ says top investor about Palantir Stock

Palantir (NYSE:PLTR) seems ready for a promising future, with AI technology playing an increasingly important role in the decision-making processes of both companies and governments.

The company has posted profits for seven straight quarters, and second-quarter 2024 results showed impressive growth again. Palantir’s bootcamp approach has provided prospective customers with hands-on experience, leading to a significant increase in the number of paying customers – up 83% year-over-year and 13% quarter-over-quarter in the second quarter of 2024 alone.

Based on these positive numbers, the stock has skyrocketed and is up 112% in 2024.

However, one of the top-rated investors known as Cavenagh Research acknowledges Palantir’s success but believes the stock has risen too high to justify adding a position at this point.

“Palantir’s current stock price reflects a significant overvaluation, making it difficult to justify an investment at this level,” writes Cavenagh, who ranks in the top 4% of all TipRanks stock professionals.

According to Cavenagh, using the expected operating profit of $1.2 billion for 2026 puts Palantir at an EV/EBIT ratio of almost 60, which represents a 300% premium compared to its peers in the IT sector.

Other measures also indicate overvaluation. Cavenagh highlights that Palantir’s price-to-earnings ratio, price-to-sales ratio and EV/EBITDA ratio are 382%, 1,000% and 1,193% higher than industry averages, respectively.

“Needless to say, all these figures reflect extreme overvaluation compared to industry peers, making it impossible (for me) to make the case for an investment based on current valuation levels,” Cavenagh opined.

That said, the investor understands PLTR’s appeal, citing its success in acquiring commercial customers and aligning with a number of U.S. defense priorities. Additionally, the company’s recent inclusion in the S&P 500 will lead to “increased demand for its shares from index funds and ETFs that track the index, leading to immediate buying pressure and potentially higher stock prices.”

Ultimately, however, the high share price makes it difficult “to justify an investment at this level.”

“Accordingly,” Cavenagh summarized, “I remain rated Sell until the risk-reward improves.” (Click here to view Cavenagh Research’s track record)

The view also seems somewhat pessimistic among Wall Street analysts. With 4 Buy, 6 Hold, and 6 Sell ratings, PLTR has a consensus rating of Hold (i.e. Neutral). The average 12-month price target of $27.67 implies a potential downside of 24% from current levels. (To see PLTR stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is for informational purposes only. It is very important to do your own analysis before making an investment.