Palantir Technologies: A Rapidly Rising Value?

The Rise and Valuation of Palantir

Palantir Technologies’ stock price is attracting investor interest. It has increased by 8.6% in the last week, 15.8% in the last month, and 166.6% this year. Over the past twelve months, this figure has jumped by 378.2%, drawing attention.

Recent developments, including significant government and commercial contract wins, as well as high-profile partnerships in artificial intelligence and data analytics, keep Palantir in the spotlight. These factors have not only heightened market excitement but also fueled debates about whether the current price reflects future potential or just hype.

Despite all this excitement, Palantir’s current status fails the undervaluation checks with a score of 6 out of 0. We will examine how this score was calculated using different valuation approaches. If you want to understand Palantir’s true value, stay with us until the end.

The Discounted Cash Flow (DCF) model considered takes into account a company’s intrinsic value by predicting future cash flows it will generate and discounting those amounts to present value. This approach offers a reliable way to assess what Palantir Technologies’ true value might be based on its future cash generation potential.

According to recent data, Palantir generated $1.70 billion in free cash flow over the past twelve months. Analysts anticipate that this figure will continue to increase, projecting future estimates to reach approximately $7.3 billion by 2029 and around $14.8 billion by 2035. However, analyst predictions only cover the next five years, so longer-term forecasts are also derived for a broader perspective.

Based on projected cash flows, the DCF analysis calculates the intrinsic value per share to be $76.13. Compared to the current market price, it indicates that Palantir appears to be approximately 163% overvalued in this model.

Conclusion: OVERVALUED

The Price-to-Book (P/B) ratio, known as a market valuation model, emerges as a suitable valuation metric frequently used for software companies. With Palantir’s strong balance sheet and considerable intangible assets, this ratio can help investors assess whether the stock price reflects the underlying value of the company’s assets.

Currently, Palantir’s P/B ratio is measured at 80.21. This is significantly above the software sector average of 3.97 and the average of similar companies at 52.57. This indicates that the stock is priced at a significant premium compared to many competitors.

Simply Wall St’s unique Fair Ratio metric takes into account factors such as Palantir’s unique growth prospects, risk profile, profitability, sector dynamics, and market value to assess this comparison more accurately. This method provides a more comprehensive valuation tailored to the company’s specific situation rather than relying on broad industry or peer averages.

Comparing Palantir’s true P/B ratio with the Fair Ratio provides a clearer view of whether the current stock price is rational according to fundamental factors. In this case, the company’s P/B ratio is well above the Fair Ratio, supporting the view that the stock is overvalued by this metric.

Conclusion: OVERVALUED

P/B ratios tell a story, but is the real opportunity elsewhere? Don’t forget to look at the rapidly growing 1414 companies.

The alternative approach we mentioned earlier, Narratives, makes investment analysis more intuitive and meaningful. A Narrative is the story you create about Palantir Technologies, bringing together the company's future growth expectations, potential earnings, growth rate, and profit margins.

At Simply Wall St, Narratives make this process interactive and accessible. Millions of investors can create, compare, and develop their own views on the community page with just a few clicks, without needing financial modeling expertise.

This powerful tool helps you compare your Fair Value with the market price for making buy or sell decisions. Narratives are updated as new earnings or news are released, keeping your analysis current and engaging.

For example, one investor might consider Palantir worth $111.66 due to its strong commercial AI potential, while another might value it at $66.00 because of its excessive dependence on government contracts. Both narratives capture these personal views and instantaneously show how their target prices compare to the current market price.

Do you think there’s another story regarding Palantir Technologies? Check out our Community to see what others are saying!