The Palantir stock price has surged this year and is the best-performing company in the Nasdaq 100 Index this year. It has jumped by 395% in the last 12 months, bringing its market capitalization to over $432 billion.
Palantir growth is continuing
The ongoing PLTR stock price surge has pushed its market capitalization to over $432 billion, making it the 21st biggest company globally. It is much bigger than other popular names like Johnson &Johnson, Costco, Bank of America, and Procter & Gamble.
Palantir has benefited from the ongoing artificial intelligence tailwinds that have also benefited other companies like Nvidia and ASML.
The most recent results showed that its business was doing well, with its total revenue rising by 48% to $1 billion. Most of this revenue came from the United States, where it made $733 million after making 157 deals of at least $1 million.
The management expects that the annual revenue will be between $4.14 billion and $4.15 billion. It also raised the US commercial revenue guidance to over $1.3 billion, which will represent an 80% annual growth rate. Its free cash flow will be between $1.912 billion and $1.92 billion.
Valuation concerns remains
The challenge, however, is that the company is highly overvalued based on the common multiples. Besides, this is a company that will make less than $5 billion in revenue this year, that is valued at over $432 billion.
These numbers mean that the company has a forward price-to-sales multiple of 103, much higher than most other companies, including Nvidia, which has a forward multiple of 29.
The price-to-earnings multiple is better than the P/S ratio because it includes what the company retains as profit. In this, Palantir has a forward price-to-earnings ratio of 422, much higher than Nvidia’s 40. The median multiple in the technology sector is 33.
Further, Palantir has a PEG ratio of 8, much higher than the sector median of 1.86. These numbers mean that the company is highly overvalued.
Palantir prefers to use the rule-of-40 approach to validate its valuation. This is a common approach that looks at a company’s revenue growth and its margins.
When using this multiple, the company is a bargain considering that its forward revenue growth is about 40% and its profit margin is 22%, giving it a figure of 22%. When using the trailing twelve months (TTM) free cash flow margin of 38%, its rule of 40 multiple is 78%.
The rule-of-40 multiple has its limitations in that it ignores key metrics like the net revenue retention, churn, and customer concentration.
PLTR stock price analysis
The daily timeframe chart shows that the Palantir stock price has been in a strong bull run in the past few years. It recently bottomed at $142 on August 2 and then rebounded to the current level.
PLTR stock is now nearing the all-time high of $189.91. That is a sign that it is about to form a double-top pattern whose neckline is at $142, its lowest level in August.
Therefore, the most likely scenario is where the stock continues rising and potentially reaches the important resistance level at $200. This view will be confirmed if it rises above the double-top point at $189.91.
In the future, the stock could soar and push its market capitalization to over $1 trillion.
However, there is also a risk of major crash if there are signs that the AI bubble is bursting, as some analysts believe. Remember, historically, no stock goes up forever.
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