One of today's standouts was Palantir Technologies, a software company whose shares are up 6.3%, outperforming the Nasdaq by None%. At $79.89, the stock is 82.0% above its average analyst target price of $43.9.
The average analyst rating for the stock is hold. PLTR outperformed the S&P 500 index by 5.0% so far today, and by 354.5% over the last year with a return of 379.2%.
Palantir Technologies Inc. builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations in the United States, the United Kingdom, and internationally. The company is a technology company. Valuations in the technology sector are often very high, as investors are willing to overlook gaps in the fundamentals if they believe a company’s innovations can dominate or create new markets.
Palantir Technologies's trailing 12 month P/E ratio is 399.4, based on its trailing EPS of $0.2. The company has a forward P/E ratio of 168.2 according to its forward EPS of $0.47 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio of US technology companies is 30.01, and the S&P 500 average is 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To better understand the strength of Palantir Technologies's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 2,225,012 | 1,673,941 | 5 | 162.5 |
| 2022 | 1,905,871 | 1,658,523 | -8 | 70.37 |
| 2021 | 1,541,889 | 1,613,531 | -27 | 74.77 |
| 2020 | 1,092,673 | 1,913,805 | -107 | -37.18 |
| 2019 | 742,555 | 1,076,626 | -78 | 25.71 |
| 2018 | 595,409 | 1,053,448 | -105 |
- Average operating margins: -53.3 %
- Average operating margins growth rate: 0.9 %
- Coefficient of variability (lower numbers indicate less volatility): 137.3 %
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Palantir Technologies's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 712,183 | 15,114 | 697,069 | 279.44 |
| 2022 | 223,737 | 40,027 | 183,710 | -42.81 |
| 2021 | 333,851 | 12,627 | 321,224 | 204.01 |
| 2020 | -296,608 | 12,236 | -308,844 | -192.83 |
| 2019 | 334,833 | 2,149 | 332,684 | 739.58 |
| 2018 | -39,012 | 13,004 | -52,016 |
- Average free cash flow: $195.64 Million
- Average free cash flow growth rate: 37.8 %
- Coefficient of variability (the lower the better): 0.0 %
Free cash flows represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, PLTR is in a position to do either -- which can encourage more investors to place their capital in the company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). As of the third quarter of 2024, the mean P/B ratio of the technology sector is 3.91, compared to the S&P 500 average of 4.74. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Palantir Technologies's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 40.31, so it's likely that equity investors are over-valuing the company's assets.
Since it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, generally positive cash flows on an upwards trend, Palantir Technologies is likely overvalued at today's prices. The company has mixed growth prospects because of an inflated PEG ratio and weak operating margins with a stable trend. We hope you enjoyed this basic overview of PLTR's fundamentals. Make sure to check the numbers for yourself, especially focusing on their trends over the last few years.
