Palantir would need to grow revenues 1,500% over 25 years to justify its current valuation.
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We’re entering a new period in the market. Call it what you want – a paradigm shift or simply shifting investor sentiment – but it’s clear that valuations now matter.
Unlike previous periods of time, such as the growth frenzy following the onset of the pandemic in which any unprofitable growth stock with a reasonable story could skyrocket in value overnight on an idea alone, investors are clearly clamoring for returns.
Investors aren’t looking for returns a decade or two from now, but today. This immediacy and shift in investor risk-taking preferences is on broad display, with a number of the top AI-related tech names in the Nasdaq seeing their valuations hit hard in recent weeks.
Let’s dive into Palantir (NASDAQ:PLTR) and its surge this year to all-time highs, followed by its more recent price action, and try to make heads or tails of what’s going on.
Here’s why I think this recent dip is just that – a dip on the way to a much longer and protracted selloff for Palantir and other similarly-overpriced mega-cap tech stocks.
Let’s Dive Into the Fundamentals
Palantir’s share price at around $155 per share at the time of writing implies a market capitalization of nearly $370 billion. That’s larger than many of the top blue-chip stocks many investors take for granted, and is a valuation that’s bestowed upon a company that became profitable just a few years ago (after decades of being unprofitable).
At this current share price level, PLTR stock is now trading at 360-times trailing earnings and 153-times forward earnings. On a price-sales basis, this company’s valuation comes in at an eye-watering valuation of more than 100-times.
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