Palantir Technologies (PLTR), the big data company based in Colorado, will report its Q3 earnings on November 4. The company is no doubt aiming to maintain its impressive growth trajectory. Indeed, it has been one hell of a year for the software company that just recently entered the exclusive “S&P 500 Club.” PLTR stock has soared over 160% year-to-date and 205% in the last year, accompanied by an impressive revenue growth of 20.8% in the first quarter of 2024, 27.1% in the second quarter, and a gross margin of 81% in the second quarter. These are mouthwatering numbers that many companies could only dream of.
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However, despite strong momentum in the AI sector, analysts recommend a Hold rating on Palantir stock, and on TipRanks’ Smart Score, it’s rated at 2, meaning the stock is expected to underperform. Why is a company that’s doing so well, ahead of its third-quarter earnings report, experiencing a lack of belief in its success?
If you wish to read more about Palantir’s prospects, you can check out what our writer at Tipranks, Bernard Zambonin had to say about PLTR stock, right here.
For now, though, let’s examine three major concerns before Palantir reveals its Q3 report:
- Dependence on Positive Guidance Updates: Palantir’s stock performance relies heavily on its consistency in providing positive annual guidance updates, which it did in last quarter’s reports. This reliance poses a risk if future updates fall short, potentially undermining investors’ confidence in the company’s growth prospects. Due to this uncertainty, analysts believe maintaining a neutral stance is essential ahead of the Q3 report. Certainly, the bullish sentiment will reignite if management’s guidance continues to provide an upward revision on revenue for the following quarter. On the other hand, if PTLR’s management fails to deliver an upward revision for revenue growth, the potential for a downward trajectory for PLTR stock is on the cards.
- High Valuation Multiples: This also poses a genuine threat to the company’s growth prospects and investors’ sentiment. Palantir is trading at very high valuation multiples, 35 times forward sales and 120 times forward earnings. These stretched valuations increase the pressure on the company to deliver exceptional results repeatedly. Hence, many are skeptical about Palantir’s ability to sustain its momentum with no margin for error.
- Insider Selling and Investor Skepticism: There is notable insider selling by Palantir’s top executives, including CEO Alex Karp and co-founder Peter Thiel, which is a major element in lowering its Smart Score ratings to Underperform. This insider activity raises concerns about the company’s short- to medium-term growth prospects. Of course, it could just be a natural desire to profit from what has been a tiresome journey for both of them. However, it could well be that both are skeptical as to how much more the company can keep growing.
What Is the Price Target for PLTR?
PLTR is a Strong Buy on Wall Street, with Four Buys, Seven Holds, and Six Sells. The average price target for PLTR stock is $27.85, reflecting a -38.01% downside.
Final Take
By all metrics, PLTR is an exceptional company with a dreamland of a year. It grew in stature, revenue, and margins. However, according to analysts, it has one fundamental problem inspiring the other two problems: its very high valuation. This is its Achilles heel, which leaves PLTR with little room for error. In order to keep feeding the monster, management will have to keep producing a greatly optimistic outlook, and if it fails to do so in the coming third-quarter report, PLTR stock will pay the price.
