Investors in Palantir Technologies (NASDAQ:PLTR) have recently been forced to confront a strange, almost foreign feeling: a falling share price. That’s right – PLTR has lost 17% of its value over the past three months.
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According to many analysts, this was bound to happen, as the prevailing attitude on Wall Street was that the stock’s skyrocketing gains had pushed the share price into overvalued, nose-bleed territory. Indeed, with a price-to-earnings multiple north of 400x, even PLTR bulls were quick to concede that the company’s share price already factored in massive growth in the years ahead.
Supporters of the company countered that PLTR stood in a league of its own, where standard valuation metrics simply didn’t apply. They could point to the company’s astonishing growth and strong profit margins, demonstrated by its unparalleled Rule of 40 score of 114% in Q3, as evidence that Palantir was extra special.
After crunching the numbers, PhillipCapital analyst Paul Chew is siding with the bulls, while suggesting that evaluating PLTR requires a unique approach.
“We believe comparing Palantir’s valuation to its own historical range is more appropriate than a peer-median approach, which consistently implies a premium,” posits the 5-star analyst, who is among the top 3% of Wall Street pros.
PLTR’s consensus forward price-to-earnings valuation peaked in late October at 309x, details Chew. Since then, however, the analyst explains that a broad AI-driven selloff has pushed this multiple down to 170x, well below its one-year -1 standard deviation level of 190x.
In this sense, PLTR is actually undervalued, which Chew argues suggests a future re-rating. This is especially the case given the earnings potential that is lying in wait.
“We believe Palantir has captured just 2.4% of its US$119bn 2020 TAM, and with AI software growing 25%+ CAGR, the TAM has likely expanded, supporting significant upside,” adds Chew.
The analyst cites expected year-over-year revenue growth of 47% in 2025 (to $4.2 billion), along with a net profit that is forecast to nearly double for the year. He notes that commercial revenue growth is now slated to outpace government sales, with the segments expected to increase by 51% and 43% year-over-year, respectively.
Moreover, Chew points out that Palantir is rapidly expanding into new industries, having shot up from 60 sectors in 2021 to 90 in 2024, further broadening “the company’s commercial addressable market and adoption.”
Bottom line, Chew comes out bullish from day one, starting coverage with a Buy and a $208 target, which implies 32% upside for the next 12 months. (To watch Chew’s track record, click here)
Most of Chew’s colleagues prefer to sit on the sidelines, however. With 6 Buys, 10 Holds, and 2 Sells, PLTR carries a consensus Hold (i.e., Neutral) rating. Yet, its 12-month average price target of $189.94 implies ~21% upside from current levels. (See PLTR stock analysis)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.