Should You Buy Palantir Technologies Stock While It's Trading Below $140?

Palantir Technologies (NASDAQ: PLTR) stock may be struggling this year, but it's generated some incredible returns for investors. In each of the previous three years, it has more than doubled in value, on the way to becoming one of the most valuable tech companies in the world.

A bit of a cool-off for this red-hot stock was likely overdue, so its 24% decline this year shouldn't be a huge surprise. Sooner or later, investors would inevitably be tempted to take profits. But with the tech stock trading below $140 and down about 35% from its 52-week high, is now a good time to buy it?

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The business remains a growth machine

Palantir has successfully unlocked significant growth through artificial intelligence (AI). Its AI platform turned the business around dramatically. Towards the end of 2023, Palantir's growth rate was declining, but with AI, that has all changed, with the company seemingly able to continually pull levers to drive even more growth. At 85% in its most recent quarter, its results have truly been exceptional.

PLTR Revenue (Quarterly YoY Growth) data by YCharts

What's perhaps even more impressive is that over the trailing 12 months, the company's profit margin has been exceptionally high at 44%, with net income totaling $2.3 billion on revenue of $5.2 billion. Those are not the type of margins that are the norm in tech, which is why Palantir is a standout in the sector, and why growth investors have been so bullish about it.

The problem, however, may still be that its valuation hasn't come down far enough.

Palantir's stock continues to look incredibly overpriced

After years of truly incredible performances, it can take a while for Palantir's stock to return to more reasonable levels. Even with a sizable decline this year, however, I don't think it's become low enough to buy. Its price-to-earnings multiple is around 150, and even based on analysts' estimates, it's trading at 90 times its future profits. The stock's valuation is mammoth, indicating that investors are pricing in significant future growth.

The danger with Palantir is that, because the stock is as expensive as it is, expectations will remain high when it reports earnings, and anything short of exceptional guidance and a continually high growth rate could make it prone to a sharp sell-off. Palantir's stock is down big this year, even without a big earnings miss and with the business performing well. If that changes, its decline could become far more significant. That's why, although its margins look good and the growth is impressive, it still doesn't look like a buy right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.