Palantir's Growth Has Been Impressive, Its Rule of 40 Score Is Incredible, but This Number Is Just Downright Pitiful

Investors should be careful when analyzing a stock, looking beyond what management wants to focus on. Growth is important, but so too are strong earnings numbers. However, it's the excitement around top-line growth that can sometimes send a stock skyrocketing to egregious levels.

Palantir Technologies (NASDAQ: PLTR) is an excellent example of that. The business is growing rapidly, and CEO Alex Karp wastes no opportunity to remind investors of the company's performance and the success of its artificial intelligence (AI) platform, which remains in high demand. But while many of its metrics look incredible, there's one very important one that falls short.

Image source: Getty Images.

Palantir's earnings (on a per-share basis) are incredibly low

Palantir is growing at an incredibly fast rate, with revenue up 70% in the company's most recent quarter (which covered the last three months of 2025). On $1.4 billion in revenue, its earnings were also fairly strong, coming in at $609 million, for a 43% profit margin. Its CEO also touts its Rule of 40 score, which combines the company's growth rate and adjusted margin. At 127%, he believes Palantir is in a league of its own.

One number that isn't so great, however, is its earnings per share (EPS). Its diluted EPS for the past year was just $0.63. This makes the stock, which trades at around $130 today, look incredibly expensive, as it means that Palantir trades at more than 200 times its trailing earnings.

The company relies heavily on stock-based compensation, and its share count has been rising in recent years. The higher the share count in relation to earnings, the lower the EPS figure. If the company were to buy back shares at a meaningful rate, that would improve the metric, bring down the earnings multiple, and effectively make the stock a better buy for investors.

As the market has paid more attention to valuation, Palantir's stock has struggled

This year has been a tough one for high-priced tech stocks, and Palantir is no exception. The stock is down 25% and is about 36% away from its 52-week high of $207.52. Investors can choose to ignore valuations, but a correction may be inevitable when buying such a highly valued stock. Even at its current valuation, the stock still looks incredibly expensive given its EPS, which is why I wouldn't be surprised to see Palantir's stock fall even further as the year goes on.

Even if you think the business is amazing, that doesn't mean that its stock is a buy at any price. Paying a high premium for a stock may not be much of a worry when the market is hot, but amid a downturn, it can lead to significant losses.

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.