Why Did Palantir Stock Pop Today?
Key Points
Palantir stock was down as much as 23% at one point last month.
Investors are buying 50% more Palantir calls than puts this week.
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Palantir (NASDAQ: PLTR) investors had a horrible November, as shares of the tech wunderkind tumbled 23% from an all-time high hit early in the month to a low below $155 less than three weeks later.
Then Palantir bounced.
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By month's end, shares of the government contractor and artificial intelligence superstar stock regained 8% of its losses. As the calendar flips to December, Palantir's run isn't done. Shares rose 3.2% through 10:40 a.m. ET Tuesday -- despite a lack of obviously good news.
Image source: Palantir.
Palantir's growing -- profitably
No obvious recent news, that is. Longer term, the trends behind Palantir testify to the strength of the business, which has grown its revenue nearly four times in size over the last five years (according to data from S&P Global Market Intelligence), and flipped from reporting large losses to modest and growing profits.
Over the last 12 months, Palantir has earned $0.43 per share. Free cash flow looks even stronger, up to nearly $1.8 billion, and running about 64% ahead of reported net income. (So Palantir is actually even more profitable than it looks.)
Is Palantir stock a buy?
Investors today seem to be betting this strong growth will erase last month's losses and keep driving the stock higher. StreetInsider.com data shows investors this week are betting roughly 1.5-to-1 on call options rather than puts. And yet, last month's sell-off still raises concerns.
Why did Palantir stock sell off in the first place? Because it's incredibly expensive. Its price-to-sales ratio is in the triple digits, and Palantir trades for more than 388x reported earnings. That might be OK if the stock was doubling earnings every year, but most analysts forecast a long-term growth rate of less than 50%.
With those numbers, Palantir stock remains a sell for me.
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Rich Smith 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.
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