Palantir Is Growing at a Jaw-Dropping Rate, but Is the Stock a Buy?

Few companies are doing as well as Palantir Technologies (NASDAQ: PLTR). It just announced another impressive quarter, with revenue growth coming in at an outstanding 85% year over year. With a growth rate like that, it may seem like the sky is the limit for Palantir, but growth isn't everything with a stock. There are several considerations investors must account for when examining a stock, and growth is only one of them.

So, is Palantir stock a buy right now?

Image source: Palantir.

Along with strong growth, Palantir is also highly profitable

Palantir's growth rate is admittedly impressive. Its commercial segment more than doubled year over year, with revenue rising 104%. Palantir maintains a dual-sided business, with nearly half of its revenue from government clients and the other half from commercial. Both of these client bases are important, and the strength of each showcases the flexibility and performance of Palantir's AI-powered data analytics software.

But revenue isn't everything; if Palantir is operating at a loss to push its product into the hands of more users, this growth rate becomes less impressive. However, Palantir is also extremely profitable. In the first quarter, its GAAP profit margin was an impressive 53%. That's among the best profit margins I've ever seen from a software company, further underscoring that Palantir is one of the highest-performing software companies.

But what about Palantir's valuation? With all this success, a high valuation has come, and it's my one gripe against the stock. The best investments bought at the wrong price can still be bad investments, and Palantir is right on the borderline. Currently, Palantir trades for about 93 times forward earnings and 154 times trailing earnings.

Data by YCharts.

So, even after Wall Street analysts project a very strong year for Palantir, its stock will still be pricey. There aren't many examples of profitable companies growing as quickly as Palantir is, so the best comparison I can point to is Nvidia.

During its latest quarter, Nvidia's growth rate was 73%, and it trades for 45 times trailing earnings and 26 times forward earnings. Palantir's profits would need to triple to trade in the same range as Nvidia, indicating several more years of strong growth are already priced into the stock.

As a result, I still think it's best to avoid Palantir's stock, as expectations remain incredibly high, with several years of strong growth already baked in.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.