Palantir Technologies Inc (NASDAQ:PLTR) shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 21.1%.
Palantir’s stock has had a wild ride this year, but investors may be wondering whether there’s any value to be found in Palantir shares after the sell-off.
Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.
For comparison, the S&P 500’s PE is currently at about 30.5, nearly double its long-term average of 15.9. Palantir doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Palantir reported a $102.1 million net loss.
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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.3. Palantir’s forward earnings multiple of 91.4 is more than four times the S&P 500’s, making Palantir look overvalued. Palantir’s forward PE ratio is also more than three times the average multiple of its technology peers, which are averaging a 21.8 forward earnings multiple.
Yet when it comes to evaluating a stock, earnings aren't everything.
The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1.0. Once again, without positive earnings, Palantir doesn’t have a positive PEG ratio to use as a valuation gauge.
The price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.26, well above its long-term average of 1.63. Palantir’s PS ratio is 25.9, nearly eight times the S&P 500 average. However, Palantir's PS ratio is also down roughly 14.3% over the past year, suggesting the stock is priced at the low end of its historical valuation range.
Finally, Wall Street analysts see value in Palantir stock over the next 12 months. The average analyst price target among the eight analysts covering Palantir is $24.50, projecting about 35.4% upside from current levels.
The Verdict: At today's price, Palantir stock appears to be overvalued based on a sampling of common fundamental valuation metrics.
Palantir's stock was trading at 18.04 on Wednesday afternoon, down 2.85% on the day.