After Palantir's Impressive Q1 Earnings Report, This Remains the Biggest Issue With the Stock
Key Points
Palantir beat analysts' revenue and earnings estimates in the first quarter.
Palantir's stock plunged by more than 7% the day after it reported its Q1 results.
The stock is priced for perfection, leaving it vulnerable to sudden pullbacks.
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When Palantir (NASDAQ: PLTR) reported its first-quarter results after the close of trading on Monday, the financial performance was impressive. Its revenue increased 84% year over year to $1.63 billion, and its adjusted earnings per share (EPS) more than doubled to $0.33. Both figures beat Wall Street estimates.
From the outside looking in, Palantir is continuing the impressive momentum that it has had over the past couple of years. However, there is one glaring issue with the stock right now. That's how extremely expensive it is. As of May 5, the stock is trading at 94 times its projected earnings over the next 12 months and 44 times its projected sales for the next 12 months.
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PLTR PE Ratio (Forward) data by YCharts. PE = price-to-earnings. PS = price-to-sales.
Keep in mind that Palantir's stock is much cheaper than it has been in recent months (its 19% decline this year is largely to thank), and it's still extremely expensive by even the most generous standards. As it stands, Palantir is priced for perfection, and anything that deviates from exactly what optimistic investors expect can lead to quick, drastic pullbacks.
Despite the impressiveness of Monday's report, Palantir's stock declined by more than 7% on Tuesday. A revenue beat, an EPS beat, and increased second-quarter and full-year guidance weren't enough to support the lofty stock price. That should serve as a cautionary tale about investing in expensive stocks with valuations that are largely based on speculations about future performance.
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Stefon Walters 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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