‘Be Cautious When Everyone is Greedy,’ Says Investor About Palantir Stock

There are stock market winners, losers, and then there is Palantir Technologies (NASDAQ:PLTR), which seems to be in a league of its own. PLTR has been a veritable rocket ship of growth over the past year, skying by almost 500% during the past twelve months.

The company has grown revenues and attracted a wide swath of satisfied customers, and shows no signs of slowing down. In its most recent quarter, Palantir grew U.S. commercial revenues by 71% year-over-year to reach $255 million – while its $373 million in U.S. government contracts represented 45% year-over-year growth.

Exuberant investors have continued to pour in, and PLTR recently hit an all-time high earlier this month. There is also plenty of optimism that President Trump’s announcement last week of a ‘Golden Dome’ missile defense system – which Palantir is likely to be a key partner on – could provide additional tailwinds for the company.

However, investor Johnny Zhang cautions that the skyrocketing share price does not necessarily mean that PLTR is a good investment, despite Palantir’s stellar results.

“PLTR’s lofty valuation, trading over 200x of non-GAAP P/E fwd, indicates the stock’s recent rally was largely driven by market optimism and momentum chasers,” explains the investor. “A good company doesn’t mean it’s a good stock.”

Zhang argues that most of the potential upside is already priced into PLTR, leaving plenty of room for losses up ahead. The investor notes that PLTR is a high “beta stock” that tends to trade with major tech indexes, meaning that dips in the market could lead to downside risks.

The investor is also worried about the high concentration of Palantir’s sovereign clients, which creates uncertainty for future growth if government priorities change. Zhang cites cuts in U.S. defense spending as a particular risk to consider.

However, it is the inflated valuation that the investor calls a “red flag,” noting that PLTR’s EV/sales for the trailing twelve months is 93.5x, which is close to four times greater than that of NVDA.

Though Zhang admits that the “market froth” could continue to push the share price higher, he has seen enough to head for the exits.

“PLTR’s risk and reward profile is very unattractive,” concludes Zhang, who rates PLTR a Strong Sell. (To watch Johnny Zhang’s track record, click here)

Wall Street, on the other hand, is split on this one. With 3 Buy, 11 Hold, and 4 Sell ratings, PLTR has a consensus Hold (i.e. Neutral) rating. Its 12-month average price target of $100.13 has a downside of ~19%. (See PLTR stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.