Palantir Stock Is 2,500% More Expensive Than the S&P 500 Average. History Is Clear About What Happens Next.

Palantir Technologies (NASDAQ: PLTR) trades at about 80 times its annual sales. The average company in the S&P 500 today trades at roughly 3 times sales. A price-to-sales (P/S) ratio of that magnitude puts Palantir in territory that almost no company in the index has ever occupied and, more importantly, held on to.

CEO Alex Karp has argued that these metrics are meaningless for his company. He recently told investors that "the way in which we view value is obviously no longer relevant." He believed that traditional valuation frameworks can't capture what Palantir is.

He would argue -- and Palantir bulls would too -- that the company is one of a kind. Maybe they're right, but investors have heard versions of that kind of thinking before, and it has rarely worked out.

Beyond the valuation, there are real questions

To be sure, Palantir is executing at an incredible level and has genuinely carved out a key role for itself within the federal government and across large organizations in the U.S. I'm not denying that. But to truly be one of a kind, the company has to continue doing this for years to come. And it likely can't maintain its current growth pace without more international clients.

Palantir generates 77% of its revenue in the United States. International commercial revenue rose 8% year over year last quarter. That seriously lags its U.S. growth.

Karp has said that the company "doesn't have the bandwidth to do anything that's difficult outside of America" and that countries in the E.U. don't "get AI." I think it has a lot more to do with how the company is viewed outside of the U.S. -- countries around the world are suspicious of sharing sensitive data with an organization with such close ties to the Central Intelligence Agency (CIA) and the U.S. intelligence community at large.

Image source: Getty Images.

As much as Palantir is blazing a trail and outclassing its competition at the moment, I'm not sure how long that can last. Can Palantir remain "one of a kind" with tech giants like Microsoft breathing down its neck? Palantir claims that nobody else can operationalize artificial intelligence (AI) within complex organizations at scale the way it can -- and for now, that looks true -- but that claim gets harder to defend every quarter as the biggest tech companies on Earth pour billions into catching up.

What history says about stocks like this

These cracks -- even if manageable for another company -- could prove disastrous for Palantir's stock price. It's priced as if it were a once-in-a-generation company that no one can touch, now and well into the future.

At least that's what the historical record says.

Just 148 companies that at one point have been included in the S&P 500 have ever traded with a price-to-sales ratio (P/S) above 40 in their history -- remember, Palantir trades at double the P/S.

Of those, only 10% beat the market over a three-year period -- beat the market. Not crush it. Not wildly outperform. Just keep pace.

Zoom out further, and it gets even worse. Over 20 years -- a buy-it-for-life kind of timeline -- only 3% have.

That's a very strong historical signal. For Palantir to even match the S&P 500's returns from here would make it one of the rarest companies in market history. You have to ask yourself not just whether Palantir is an extremely well-run company but also whether you believe it's more or less perfect.

If Palantir stock crashed 50% tomorrow, it would still be one of the 150 most expensive companies in the history of the S&P 500. That's how much optimism is already baked in.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool has a disclosure policy.