Stock Market

Should You Buy Palantir Stock Before Dec. 31?

Palantir Technologies (NYSE:PLTR) has been among the most clear-cut winners of the surge in AI stocks. Indeed, the run PLTR stock has seen over the past year has put many top AI plays to shame. This is a company that’s still well off its meme-cycle highs. However, strong momentum is backing this company, and retail investors are noticing.

The question is whether PLTR stock can continue its rise into 2024. Indeed, the stock’s reliance on the AI trend makes it vulnerable to downside risks if results disappoint, prompting some to consider avoiding it.

Palantir, known for data analytics for governments and enterprises, differentiates itself from U.S. military use. Once at 47%, revenue growth slowed to 24% in 2022, projecting 16% in 2023.

Let’s dive into how these numbers may look moving forward and whether PLTR stock is worth buying before the end of the year.

Is PLTR Stock Overvalued?

While investing in Palantir Technologies offers exposure to cyber-defense and AI software markets, potential investors should exercise caution. Positive data suggests growth, but careful timing is crucial to avoid overpaying and holding a stagnant investment.

Palantir Technologies displays high valuation metrics, with a trailing price-earnings ratio of 61.6-times, well above the sector median of 26.3-times. Additionally, its trailing price-sales ratio stands at 25.7-times, far exceeding the sector median of 2.8-times. 

Despite decent sales growth, the stock price may already reflect this, posing a concern for value-seeking and contrarian investors. It’s reasonable to hesitate to invest in PLTR stock at its current valuation.

Although it is a profitable AI-connected company that merits attention, its stock price likely reflects its growth. For those cautious about its valuation, a strategic approach is to wait for a 10% or, preferably, a 20% drop in PLTR stock before considering a long position, ensuring a more favorable entry point.

Sompo Holdings Sold Half of Its PLTR Holdings

PLTR stock dropped 13% in the last five trading days following Sompo Holdings’ sale of part of its stake, earning $584.2 million. The amount sold remains undisclosed, but it’s estimated to be about half its previous stake.

Sompo Holdings revealed in a recent statement that it sold some of its investment securities to manage risk, optimize balance sheets, and enhance capital efficiency for improved corporate value.

Palantir and Sompo, with a history dating back to 2019, collaborated on a joint venture, securing investments and signing expansion agreements. The partnership aimed to deliver services to the Japanese government and foster growth opportunities for Sompo Holdings.

Continuous Bear Cases from Analysts

PLTR stock is up 170% this year but recently saw a dip due to Sompo’s sale and concerns highlighted by William Blair analyst Louie DiPalma about Palantir’s U.S. Army contract renewal and potential price reduction.

DiPalma noted “friction” between Palantir and the U.S. Army on data ownership. He predicts a reduced two-year contract, less than the current $116 million annual rate, as the Army seeks alternative vendors.

I believe there’s too much risk relative to the potential upside concerning PLTR stock right now. Thus, I maintain my bearish stance until the company’s bottom-line growth shows a sustainable upward trajectory.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.