gremlin/E+ via Getty Images Palantir Technologies Inc. ( NYSE: PLTR ) has been a top choice of artificial intelligence enthusiasts over the past year. However, it's valuation appears to be well ahead of its projected growth rate.
Like I mentioned in a previous note of caution back in November here , when the AI investment excitement dies down or corrects in rapid fashion, Palantir could easily be a $15 or lower stock later in the year from today's $24 price. Why not wait for a better entry point, if you want exposure to AI-related names? I will say earnings and sales growth rates estimated around 20% per year into 2027 are worth something to owners. But, paying 72x this year's EPS for 20% annualized growth is incredibly expensive (3.
5x forward PEG Ratio, when buy territory is usually defined as 1.0x to 1.5x).
In terms of an after-tax earnings yield on investment, Palantir's 1.5% rate is incredibly unattractive vs. 5%+ for cash savings rates.
Seeking Alpha Table - Palantir, Wall Street Analysts Forecasts for 2024-26, Made June 11th, 2024 My view is nothing can wrong with management's business execution on sky-high investor expectations for growth. For example, any downshift in expectations from 20% growth rates to 15% would likely be devastating for the stock quote. If we put a PEG Ratio of 2x on the stock from reduced EPS expansion results, using a 30x P/E (2x EPS gains of 15% annually), a bearish price target forecast all the way back down to $10 a share might be possible by.
