Valuation, analyst goals and what’s next News ad

Palantir Technologies Inc. NASDAQ: PLTR was one of the best performing stocks in 2024, posting gains of over 300%. However, in 2025, things were different. As of January 14, 2025, PLTR stock was down 14% for the year.

To be sure, Palantir’s recent stock performance has caused many analysts to abandon the “I told you so” narrative. With the stock currently trading below its 50-day simple moving average (SMA), it is possible that PLTR stock could fall further.

Palantir Technologies today

PLTR

Palantir Technologies

$71.77 +2.53 (+3.65%)

As of 01/17/2025 16:00 Eastern

52 week range

$16.03

▼

$84.80

P/E ratio

358.87

Target price

$43.78

Part of this is because institutional investors are now on board. Short interest in PLTR stock is relatively low, but has risen markedly over the past 60 days. Unsurprisingly, this correlates with PLTR stock falling.

However, it would be wise not to read too much into the recent share price movement. This kind of action with growth stocks like Palantir is normal. That doesn’t mean they aren’t frustrating, especially for investors with a lower risk tolerance.

Palantir continues to be an exciting company at the forefront of the convergence of artificial intelligence and software. Over the past month, nothing has fundamentally changed except sentiment. Here’s what you should know before making any hasty decisions about PLTR stock.

Over the past 18 months, the bearish case against Palantir has come down to valuation. As of January 14, 2025, PLTR stock had a market capitalization of approximately $151 billion. However, even with the stock’s performance over the past 30 days, PLTR stock still trades at a FY2025 price-to-earnings ratio of over 136x and a price/sales (P/S) ratio of over 55x.

That’s a steep premium even for Palantir, which is classified as a software-as-a-service (SaaS) stock. This group tends to command a market premium among technology stocksbut it’s fair to say that even with that expected premium, PLTR stock is an exception.

However, there may be a reason why Palantir earns a premium, which could be related to the company’s ability to generate free cash flow (FCF). In the trailing 12-month period, the company generated free cash flow of US$983.3 million on revenue of approximately US$2.6 billion. This is a profitability of 37%, which exceeds that of many companies in the same group.

A company’s free cash flow margin may be the factor that analysts pay attention to. January 6, 2025 Morgan Stanley New York Stock Exchange: MS reaffirmed its “underperform” rating on the stock, as well as its $60 price target. However, this is only part of the story. YuBS AS Group New York Stock Exchange: UBS initiated coverage on PLTR on December 19, 2024 with a Neutral rating and an $80 price target. At the same time, the firm acknowledged that Palantir is ahead of its software competitors in a “significant way.”

The price targets are notable for two reasons. First, a year ago, many analysts predicted PLTR’s price in the $20 range. Some of them even cost $11. When firms like Morgan Stanley and Goldman Sachs Group Inc. (NYSE:GS) If we start setting a price target around $60, Palantir’s valuation will begin to normalize.

Second, it means that PLTR stock’s rally in the second half of 2024 was driven by institutional investors rather than solely retail investors doing the heavy lifting.

Palantir reports earnings on February 3, 2025. Analysts forecast the company will post earnings of 11 cents per share on revenue of $776.78 million. That would be a 175% YoY increase in earnings and a 52% YoY increase in revenue.

However, if these numbers are accurate, the company will report full-year revenue growth of 26% year over year. At first glance, this growth is encouraging. However, the company would need growth of two to three times that size to justify its current valuation.

Many retail investors went long when the stock was trading in the teens or even lower. These investors are not easily deterred. And since institutional investors have to hold PLTR shares in their portfolios, $60 seems much closer to the bottom of the stock’s value than the ceiling.

However, even continued earnings could put more pressure on PLTR stock in the short term. However, if Palantir’s revenue rises, as it usually does, that could easily set the stage for a pullback towards the $70 level.