Palantir Could Be the Most Overvalued Company That Ever Existed

Summary

© Shutterstock / Piotr Swat We’re entering a new period in the market. Call it what you want – a paradigm shift or simply shifting investor sentiment – but it’s clear that valuations now matter. Unlike previous periods of time, such as the growth frenzy following the onset of the pandemic in which any unprofitable growth stock with a reasonable story could skyrocket in value overnight on an idea alone, investors are clearly clamoring for returns. Investors aren’t looking for returns a decade or two from now, but today. This immediacy and shift in investor risk-taking preferences is on broad display, with a number of the top AI-related tech names in the Nasdaq seeing their valuations hit hard in recent weeks. Let’s dive into Palantir (NASDAQ:PLTR) and its surge this year to all-time highs, followed by its more recent price action, and try to make heads or tails of what’s going on. Here’s why I think this recent dip is just that – a dip on the way to a much longer and protracted selloff for Palantir and other similarly-overpriced mega-cap tech stocks. Let’s Dive Into the Fundamentals Palantir’s share price at around $155 per share at the time of writing implies a market capitalization of nearly $370 billion. That’s larger than many of the top blue-chip stocks many investors take for granted, and is a valuation that’s bestowed upon a company that became profitable just a few years ago (after decades of being unprofitable). At this current share price level, PLTR stock is now trading at 360-times trailing earnings and 153-times forward earnings. On a price-sales basis, this company’s valuation comes in at an eye-watering valuation of more than 100-times. I’ll harken back to the famous investor Peter Lynch, who outlined a common strategy he pinned on what became called the price earnings to growth (or PEG) ratio. His belief is that companies valued at price/earnings ratios which are lower than their underlying earnings growth rates (a PEG ratio less than one) are investa...