Where Will Palantir Stock Be in 5 Years?
Key Points
Palantir just posted its best quarter ever as a public company, with sales up 85% and EPS up 154%, yet the stock dropped 7% after earnings.
At a price-to-sales ratio above 65, Palantir is "priced to perfection," meaning even outstanding results may not be enough to move the stock higher.
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Much has been said about Palantir Technologies' (NASDAQ: PLTR) valuation. In fact, you may be sick of hearing about it. But the fact is that it matters. Especially when you're looking five years into the future.
Palantir's blowout quarter wasn't enough
The company just posted an incredible quarter -- its best ever as a public company -- with sales up nearly 85% year over year (YOY) and earnings per share (EPS) up nearly 154%. That is a blowout quarter, plain and simple.
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Yet, at the time of this writing, Palantir stock is down 7% since its earnings call on May 4. I think that is a perfect illustration of Palantir's valuation problem. At a price-to-sales ratio (P/S) of over 65, the stock is "priced to perfection," so much so that even when the company delivers a quarter that is about as close as you can get to perfect, the stock drops.
Where will Palantir stock be in five years?
I think Palantir will continue to grow its business, probably tripling its sales in the next five years -- maybe more. But I think the pace of that growth will fall over time, and investors will decide they're not willing to pay such a premium. If the company's P/S falls to something like 20, the stock would trade essentially flat.
There will be a lot of ups and downs on the way, but I think over the next five years, Palantir's premium valuation will weigh seriously on the stock.
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Johnny Rice 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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