In J.R.R. Tolkien’s vivid imagination, a palantir was an indestructible, all-seeing stone used for telepathic communication. For Palantir (NYSE:PLTR), the big data analytics company that borrows more than just its name from Tolkien’s creation, its mission to craft “the world’s best user experience for working with data” seems no less ambitious.
And so far, the company has been making steady progress toward this AI-driven vision. Its expanding list of corporate and government clients, along with the success of its AIP bootcamps in turning interested parties into paying customers, underscores Palantir’s growing momentum.
The market has taken notice, with PLTR shares skyrocketing over 150% this year, now hovering above $43. Its recent inclusion in the S&P 500 further solidifies its status as a company that’s here to stay, not just a fleeting success.
And yet, a top investor known by the pseudonym JR Research believes things may have gone a bit too far.
“PLTR’s buying sentiments are likely nearing ‘irrational exuberance’ levels,” writes the 5-star investor, who sits in the top 1% of all TipRanks’ stock pros.
On the one hand, JR Research agrees that the company’s market strategy and AI platforms appear to have been validated. And yet, the investor finds it increasingly hard to justify the “frothy valuation.”
JR highlights PLTR’s EBITDA multiple of 90x, far exceeding the tech sector’s median of 14.4x and its software peers at 20x, suggesting that this valuation implies an annualized growth rate above 30%.
“While that’s not impossible, I believe it requires near-perfect execution to deliver such growth rates consistently without disappointing investors,” writes the investor, who adds that “the margin of safety at the current levels is seemingly non-existent.”
JR warns that jumping in now could lead to “massive disappointment.” Further adding to this concern is the fact that co-founder Peter Thiel and CEO Alex Karp have both sold significant portions of their stakes, suggesting that Palantir’s stock might have already hit its peak – for the time being.
“If you are sitting on substantial gains, it’s timely to consider taking profits,” JR advises, issuing a Sell rating on PLTR. (To watch JR Research’s track record, click here)
Palantir has attracted a mix of both supporters and critics on Wall Street, reflected in its 4 Buy, 6 Hold, and 6 Sell ratings. This results in a consensus rating of Hold (i.e. Neutral) for PLTR, though its 12-month average price target of $27.67 points to a potential downside of ~36% over the next year. (See PLTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
