Palantir (NASDAQ: PLTR) inventory has been an excellent funding lately. Over the past 12 months, the tech firm’s share price has jumped about 460% whereas during the last 24 months, it’s risen nearly 1,150%.

I’ve had this development inventory on my watchlist for ages however I’ve by no means pulled the set off. Is now the time to get in on the motion? Let’s focus on.

What’s this firm all about?

Palantir specialises in refined synthetic intelligence (AI) based mostly software program that’s designed to assist clients use their information to realize a aggressive edge. Based in 2003, it has had a variety of success serving authorities businesses just like the FBI and the CIA. Extra just lately nonetheless, it’s been shifting into the company house. And it’s having success right here too.

Sturdy Q1 outcomes

We will see this success within the firm’s latest Q1 outcomes. For the quarter, US business income was up a whopping 71% yr on yr to $255m. General, income was up 39% yr on yr to $884m.

Through the quarter, the corporate closed 139 offers of at the very least $1m, 51 contracts of at the very least $5m, and 31 of at the very least $10m – spectacular stuff!

On the again of those sturdy outcomes, the corporate raised its steerage for 2025. It now expects complete income development of 36% and US business income development of 68%.

We’re delivering the working system for the trendy enterprise within the period of AI.
Alex Karp, co-founder and CEO of Palantir

Breaking the rule of 40

One factor to notice right here is that within the first quarter, Palantir simply broke the ‘rule of 40’. It is a broadly used benchmark within the software program trade that implies that an organization’s income development fee plus its revenue margin ought to equal or exceed 40%. In Palantir’s case, it delivered a rule of 40 rating of 83% in Q1. Once more, that’s spectacular.

Having mentioned that, income proceed to be comparatively low. For the quarter, adjusted web earnings attributable to frequent stockholders was $334m, or $0.13 per share.

The valuation

What in regards to the valuation although? Nicely, that is the place issues get somewhat difficult for me. I don’t suppose the price-to-earnings (P/E) ratio’s the fitting valuation metric to make use of right here. When an organization’s doing disruptive issues like Palantir is (and seeing prolific development) however nonetheless has low earnings, P/E ratios are usually meaningless.

We may take a look at the price-to-sales ratio although. At the moment, the market-cap’s $281bn. In the meantime, for 2025, Palantir expects to generate gross sales of round $3.9 billion. So we’ve a price-to-sales ratio of about 72.

That’s very excessive. For reference, Nvidia‘s on about 14 whereas cybersecurity firm CrowdStrike and information analytics agency Snowflake are on 20 and 16 respectively (all of those shares are thought of costly).

My view

Given the excessive price-to-sales ratio, I received’t be shopping for the inventory proper now. To my thoughts, the valuation’s too excessive.

At current, Palantir’s priced as if it’s going to continue to grow at 40% a yr indefinitely. Historical past reveals nonetheless, that’s unlikely to occur – at some stage development’s more likely to sluggish (a recession could possibly be a catalyst).

I’m going to maintain the inventory on my watchlist although. On the proper price, I could possibly be desirous about taking a small place.