Citi on Palantir: Fundamentals are good, but “we continue to have concerns” about valuation

Citi analysts following Palantir published a new note on the stock after sitting down with CFO David Glazer in New York recently. The upshot?

The business is doing very well, with fast growth expected for the purveyor of AI, data management, and defense-related software services on a number of fronts, from its all-important government contracting business — Uncle Sam is its single largest customer — to international commercial and government sales in the Middle East, to growing corporate uptake of Palantir’s AI platform for commercial clients.

The catch, of course, is the valuation of the shares, where Palantir is an absurd outlier across any range of metrics.

• Price to expected 2025 sales? 112x. (Even Tesla, also a wildly popular retail stock and one that trades with little reference to its business fundamentals, has a price-to-sales multiple of just 12x.)

• Palantir’s enterprise-value-to-next-12-month-sales multiple? 72x. That’s the kind of valuation you sometimes get on highly speculative penny stocks, not a $320 billion corporate titan.

• And on good old-fashioned price to next 12-month earnings, the market gives Palantir a 210x multiple, about 10x the S&P 500’s PE of about 21.5x.

All these figures suggest that by any traditional market rule of thumb, all of Palantir’s — admittedly impressive — growth, and then some, has already been priced in to the shares and extrapolated with overwhelming certainty to continue far into the future.

That’s basically why Citi analysts didn’t make any major changes to their call on the stock after the meeting, keeping their target price on the shares at $115, where it’s been since early May. They wrote:

“The meeting reiterates our upbeat view on PLTR fundamentals, but we continue to have concerns on how stock can grow into its valuation, especially if magnitude of positive revisions slow or large contracts (i.e., Golden Dome) don’t materialize as expected.”

Of course, the Palantir faithful scoff at concerns about valuation. And maybe for good reason: if they had let such concerns about valuation dissuade them from holding the shares, they would’ve missed out on a remarkable gain of 470%(!) in the past 12 months alone.

That’s by far the best performance of the S&P 1500 Index, which captures more than 90% of the US stock market in terms of capitalization.