Hold Up! Palantir Stock Looks Nice, but It’s Overpriced.

Stock Market

If you invest in Palantir Technologies (NYSE:PLTR), you’ll get exposure to the high-confidence markets for cyber-defense and artificial intelligence software. So, PLTR stock seems like a no-brainer for 2024, right? Not so fast, as Palantir Technologies should ring some alarm bells for value-conscious financial traders.

Sure, there are positive data points indicating vigorous growth for Palantir Technologies. The bull case is straightforward, but prospective investors must time their entries carefully. Otherwise, they might end up paying too much for Palantir stock and holding a heavy bag for a while.

Why Are Traders So Hyped Up About PLTR Stock?

This year has been, above all else, the year of AI fever. Since Palantir Technologies has infused AI into its products/services, it shouldn’t be too shocking that short-term traders loaded up on PLTR stock.

Palantir Technologies undoubtedly caught the market’s attention when the company posted strong third-quarter 2023 results. The company’s revenue grew 17% year over year to approximately $558 million, beating the analysts’ consensus estimate of $556 million.

Turning to the bottom-line results, Palantir Technologies reported adjusted earnings of 7 cents per share, which slightly outpaced Wall Street’s call for 6 cents per share. Thus, it’s reasonable to conclude that Palantir is generating fairly robust sales and income.

In addition, Palantir Technologies won a seven-year contract, valued at up to 330 million British pounds or roughly $414 million, with the British government’s National Health Service. Per a Barron’s report, Palantir will be tasked with developing a “tool meant to simplify communication across separate NHS systems.” Clearly, this is a big win for Palantir Technologies.

Palantir Stock Traders Got Ahead of Themselves

That’s a lot of positive news to consider. Yet, it appears that short-term traders already considered these developments, and then priced them fully into Palantir stock.

An argument could be made that Palantir Technologies has been the eighth member of the “Magnificent Seven” in 2023. Believe it or not, PLTR stock touched $20 last week after starting the year at $6 and change.

Palantir Technologies’ GAAP-measured trailing 12-month price-to-earnings (P/E) ratio of 61.6x is significantly higher than the sector median P/E ratio of 26.27x. Even more alarmingly, Palantir’s trailing 12-month price-to-sales (P/S) ratio is a jaw-dropping 25.72x, versus the sector median P/S ratio of 2.82x.

Hence, even while Palantir Technologies has shown decent sales growth, this has already been accounted for in the stock price. This is a major concern if you’re a value seeker and/or a contrarian investor. Therefore, it’s understandable if you’re not willing to take a chance on Palantir stock at its current price.

Wait for a Drop in PLTR Stock

Palantir Technologies is a profitable company with AI connections, so it’s fine to keep the company on your radar. The problem is that the share price already includes Palantir’s growth.

If you agree that Palantir Technologies is too richly valued, there’s a strategy you can employ. Wait for PLTR stock to fall at least 10% – or better yet, 20% – before taking a long position. That way, you’ll have portfolio exposure to a successful technology business at a more reasonable price point.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.