Why Palantir Technologies Stock Charged Higher Today
Key Points
Palantir's stock has been in a funk, weighed down by what some believe is a pricey valuation.
One Wall Street analyst believes the selling has gone too far.
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Palantir Technologies (NASDAQ: PLTR) stock hit the ground running Thursday, climbing as much as 5.7%. As of 11:38 a.m. ET, the stock was still up 3.1%.
The catalyst that sent the artificial intelligence (AI) software and data mining specialist higher was bullish commentary by a Wall Street analyst.
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It don't get no respect!
Palantir stock has been on the receiving end of a brutal downturn, tumbling 38% from its peak -- despite generating stunning growth -- and one analyst believes the selling has simply gone too far.
D.A. Davidson analyst Gil Luria upgraded Palantir stock to buy from neutral (hold), while simultaneously raising his price target to $175 from $165. For investors keeping score at home, that represents potential upside of 39% compared to Wednesday's closing price.
"Palantir has grown into its valuation as profits have soared," Luria wrote, "and the multiple has come [down], providing investors with a gift just in time for the United States of America's 250th birthday." The analyst went on to say, "We believe Palantir's valuation is the most attractive it has been in a while, especially in relation to other high-growth software companies." While it trades in line with many of these AI-centric software peers, it's growing "twice as fast as any of them."
I think the analyst hit the nail on the head. In the first quarter, Palantir grew revenue 85% year over year to $1.63 billion -- its fastest year-over-year growth rate ever and the 11th consecutive quarter of accelerating growth. This drove Palantir's earnings per share (EPS) up 325% to $0.34.
I recently argued that investors are simply using the wrong metrics to value the AI specialist. At 145 times earnings, the stock looks ridiculously expensive, but that fails to consider Palantir's high double-digit growth. Using the more appropriate price/earnings-to-growth (PEG) ratio, the stock returns a multiple of 0.5, when any number less than 1 is the standard for an undervalued stock.
That's why I believe Palantir stock is a buy.
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Danny Vena, CPA has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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