Is Palantir Stock Overvalued or Undervalued? The Answer May Surprise You.

Many investors seem to have an opinion about Palantir (NASDAQ: PLTR). The company can be politically polarizing, so even those outside the investing community may have a strong opinion on the business itself.

However, one thing that most investors seem to agree on is that the stock isn't textbook cheap. After a torrid run in recent years, Palantir trades at lofty market multiples. This doesn't necessarily make the stock overvalued. There are cheap stocks that are overvalued. There are also expensive ones that may be undervalued. Before you start shaking your head, let's take a closer look at the case for why Palantir is overvalued. I'll follow that up with why it could be undervalued.

Image source: Getty Images.

The overvalued case for Palantir

Pick a market multiple -- any market multiple -- and Palantir is going to trade at premium to its fellow stocks. When you have a market cap of $350 billion but sport trailing revenue shy of $4.5 billion, you know you're going to be in for top-heavy valuation.

Palantir stock trades at 78 times its revenue over the past four quarters. If you back out its strong net-cash position -- $7 billion against no long-term debt outside of its lease obligations -- the enterprise value of $343 billion lowers that top-line multiple to just 77.

Palantir's differentiated product offering has its margins expanding dramatically, but you can only stretch net margin so high. Palantir's reported earnings multiple is north of 200, and that's with a chunky net margin of 36%.

The stock has been a wealth creator for those who have owned it for a few years. Palantir stock has more than doubled in each of the past three years, even if revenue has risen only 17%, 29%, and 56%, in those three years, respectively. The stock appears to have outpaced its admittedly heady fundamentals.

The case for dismissing Palantir as overvalued is pretty clear, but let's try the bull thesis on for size.

The undervalued case for Palantir

The easiest bullish case to make for a growth stock is to point to the future. On an adjusted profit basis, Palantir is trading for 111 times forward earnings and 79 times next year's target. That's still high, but it's been consistently landing ahead of Wall Street pro forecasts. A track record of "beat and raise" performances keeps analysts revising their projections higher.

There's also the evolving nature of the business itself. Its AI-propelled automation solutions have helped it serve government counterterrorism efforts and other public sector opportunities. These days, it's Palantir's commercial business turning heads. It's still a distant second to the public sector, but its business in the private sector is growing faster. Its data-crunching prowess has translated well as a way to give businesses a leg up on the competition.

The story is still being told, and it gets better in every retelling. After seeing revenue accelerate sharply in back-to-back years, Palantir is expected to pick up the pace again in 2026. Analysts are modeling 62% growth on the top line this year. There's no metric that will point to Palantir as a bargain in today's market, but when you're as big as Palantir while still accelerating your business and widening your margins, it's a hard company to bet against when the market is rising.

Rick Munarriz 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.