Palantir Stock Isn't Cheap, But It Might Still Be a Bargain

Palantir Technologies (PLTR +1.25%) has wowed investors in recent quarters with its earnings performance and its stock performance. The company, offering software powered by artificial intelligence (AI), has been at the forefront of the AI boom.

But one thing has weighed on the stock during its exciting journey higher, and that’s valuation. At its most expensive, Palantir reached more than 250x forward earnings estimates. Since that time, valuation has come down quite a bit, but the stock is far from cheap. Still, it may be a bargain…

Let’s find out more.

Image source: Getty Images.

Making better use of data

So, first, a bit about Palantir’s business. The company offers software that helps its customers aggregate their data and leverage it to make key decisions and discoveries. The results can help them gain efficiency, lower costs, and even innovate. In the past, governments were Palantir’s primary customers, but in recent years, particularly with the launch of Palantir’s Artificial Intelligence Platform (AIP), commercial business has soared.

Today, government and commercial customers are key contributors to revenue, and total revenue climbed 70% to $1.4 billion in the recent quarter. The company also is doing an excellent job balancing growth with profitability, as we can see through its rule of 40 score. A score of 40% is considered very good, but Palantir has shown it can do much better, reaching 127% in the latest quarter.

The company’s message is also bright, with comments about surging demand for its systems from both government and commercial customers. This isn’t surprising as AIP offers customers a quick and easy way to immediately apply AI to their needs.

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NASDAQ: PLTR

Palantir Technologies

Today’s Change

(1.25%) $1.90

Current Price

$153.50

Key Data Points

Market Cap

$367B

Day’s Range

$151.00 - $155.88

52wk Range

$66.12 - $207.52

Volume

2.1M

Avg Vol

49M

Gross Margin

82.37%

Palantir’s valuation

Now, let’s turn to valuation. As mentioned, even though Palantir’s price has come down, it still isn’t cheap.

PLTR PE Ratio (Forward) data by YCharts

But it’s important to note that such valuation measures don’t account for earnings a few years down the road. So while Palantir may look expensive today, in the future, as earnings climb, valuation may come down considerably.

This has been the case with other tech giants at earlier stages of their growth stories, from Amazon to Alphabet.

AMZN PE Ratio data by YCharts

If investors refused to buy those companies due to valuation concerns several years ago, they would have missed out on some important tech growth opportunities.

Palantir may be on the same path as those market giants. The company has been around for more than 20 years, building its technology and gaining the loyalty of government customers. And today, the commercial customer represents a major new growth driver. All of this means Palantir could deliver significant earnings and stock price gains in the years to come, suggesting the stock might be a bargain today.