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He Palantir Technologies The stock price of (NYSE:PLTR) has been on a tear lately. From a low of $6 in early 2023, the growth stock is up 440% to hit $34. It’s up 102% this year alone and is close to hitting an all-time high!
Palantir shareholders had another reason to celebrate recently when it was announced that the artificial intelligence (ai) and data analytics company would be joining the prestigious S&P 500 Index.
It's clear that things are going very well. So, should I add this growth stock to my portfolio? Let's take a look.
An unconventional business
Co-founder and CEO Alex Karp celebrated the company's inclusion in the S&P 500 in a YouTube video. Dressed in athletic clothing and holding pink trekking poles in a forest, he said some on Wall Street had seen Palantir as “A Frankenstein monster driven by a freak show leader.“But now,” he added, “The rebels (had) cattle“.
Palantir, named after the “vision stones” in J.R.R. Tolkien's fantasy series, employs an unorthodox management style (Karp occasionally leads meditation sessions at the company).
It's clear that this is not a normal company and I like that.
But how does it make money? Well, Palantir is a software company that helps organizations make informed decisions by identifying patterns in massive amounts of data.
It operates two main platforms: Foundry, for commercial enterprises, and Gotham, for government and defense. Both analyze large data sets to generate insights.
To give two examples, its software was used to help locate Osama bin Laden and track Covid cases in the United States.
Frontline Clients
The company works with the FBI, CIA and the UK Ministry of Defence. Last year, it won a five-year contract to create a massive data platform for the NHS.
It also has contracts with several top-tier companies. On September 9, for example, it signed a five-year agreement with blood pressure to help the energy giant use ai to speed up engineering decisions.
Revenue growth has been strong for years, rising from $742 million in 2019 to $2.2 billion in 2023. In the first six months of 2024, revenue increased 24% year-over-year. That's pretty good.
But to join the S&P 500, a company must meet several criteria, including having positive earnings in its most recent quarter and the past four quarters combined.
On this front, the company has made great strides, and last year it turned a profit for the first time. Wall Street now expects its profits to grow by an average of 30% a year over the next three to five years.
Should I buy Palantir stock?
Much of the recent investor enthusiasm has focused on the company’s artificial intelligence platform, which provides predictive models and automates complex processes. It helped Palantir’s U.S. business revenue jump 55% in the second quarter.
My concern here is valuation. The stock is trading at a forward price-to-sales (P/S) multiple of 27. That's higher than Nvidiawhich is currently growing faster. The forward price-earnings (P/E) ratio is 82!
It's clear, then, that Palantir is priced to allow for sky-high future growth, but a lot could go wrong, from data privacy issues to a slowdown in winning government contracts (the U.S. government accounts for more than half of the company's revenue).
This is certainly a top-tier ai company that is growing very healthily, but since its valuation is so high, I prefer to buy other growth stocks for my portfolio.
