Will Palantir's Shares Potentially Surge Once More in the Upcoming Year?
Palantir (symbol PLTR, rising 6.25%) emerged as one of the standout performers in the stock market scene of 2024. The company, famous for its analytics and software management solutions for government bodies, the military, and major corporations, witnessed a staggering 340% rise in value over the year, now boasting a market cap of around $167 billion.
Delighted shareholders can't help but cherish Palantir's 2024 success, but investors now find themselves pondering: Can this impressive performance continue into the new year? Let's delve into the fundamentals of this rapidly expanding organization to gain insight.
Gaining Speed and Revenue Surge
The breathtaking returns Palantir enjoyed in 2024 often result from escalating growth rates. The company's burgeoning reputation has ignited genuine momentum for its stock, with Palantir consistently boosting its quarterly revenue growth by five successive quarters, thanks to the popularity of its AI analytical tools.
The United States commercial sector posted impressive revenue growth of 54% year-over-year in Q3 2024, reaching an astounding $179 million. This robust, fast-evolving market segment has fueled Palantir's recent stock climb.
Meanwhile, the U.S. government revenue also swelled by 40% year-over-year in the preceding quarter, reaching $320 million. Palantir's initial focus on government agencies, military, and intelligence services has never waned, underscoring its leading position in this segment.
International government and commercial revenue growth showed more modest progress, increasing 13% and 3%, respectively, during the quarter. Despite facing challenges in Europe and the Middle East, Palantir was able to drive its overall revenue growth, with prospects of sustaining this trend throughout 2025 potentially keeping the stock market bullish.
Not Entirely Rosy: Valuation Concerns
Palantir's impressive revenue growth of over $2.5 billion now allows the company to turn a healthy profit. Last quarter saw GAAP net income margin at a robust 20% and operating margin at 16%, with these figures expected to expand over the next few years.
If the company manages to keep its revenue growth rate up at 30% over the following five years, it's projected to reach $10 billion in annual revenue by 2029. Achieving this net margin at 30% during this period would equate to an annual profit of approximately $3 billion for the AI and software specialist.
While an optimistic forecast for Palantir, the stock's market cap of $167 billion reflects investor expectations even surpassing this bullish outlook. This translates to a price-to-earnings ratio (P/E) of over 60 based on the company's ability to generate $3 billion in annual earnings, a premium even higher than the S&P 500's forward P/E ratio of 22.
Expressed differently, Palantir's stock currently boasts a trailing price-to-sales ratio (P/S) of 68. The pandemic rally saw investors valuing growth stocks to such lofty heights that many investors ultimately suffered from the high costs of buying at such prices. Palantir's P/S ratio holds a place among the highest in history, reflecting an equally inflated market expectation for its growth rate.
What Does the Future Hold?
Predicting Palantir's stock market performance in 2025 is a complex task, as absolute certainty is unattainable. Should the company continue accelerating its revenue growth, the stock could still climb higher in 2025, building upon last year's gain.
Despite Palantir's seemingly unstoppable momentum, investors should never forget the importance of the price they pay for a stock and the future earnings and cash flow that the company will generate for shareholders.
Inspecting Palantir's current market cap of $167 billion, one might question whether such a valuation genuinely reflects its potential to generate revenue in the future, regardless of how optimistic the outlook might be. Therefore, cautious investors might prefer to steer clear of Palantir stock in 2025.
Investors are now considering if Palantir's impressive performance in 2024, driven by its AI analytical tools and strong revenue growth, will continue into the new year. With finance at stake, they are also scrutinizing the company's valuation, as its stock market cap of $167 billion reflects investor expectations that surpass even a bullish outlook, leading to a high price-to-earnings ratio (P/E) and price-to-sales ratio (P/S).
