Should You Buy Palantir Stock Now or Wait for a Dip?

Key Points

• The stock hit a new high last week, and Palantir investors have been cashing out in recent days.

• Analysts believe the stock still possesses a lot of downside risk.

• The company’s growth rate accelerated significantly last quarter, and it raised its guidance yet again.

• 10 stocks we like better than Palantir Technologies ›

Data analytics company Palantir Technologies (NASDAQ: PLTR) has become one of the hottest growth stories in recent years. With its artificial intelligence (AI) platform, AIP, proving to be a massive growth catalyst, the business is booming. The company’s sales are soaring, and so too is the stock. As of Monday’s close, it was up over 440% in the past 12 months.

Its market cap is north of $400 billion, making it one of the most valuable companies in the world. But given such a sharp surge in value in a relatively short amount of time, are you better off waiting for a decline in Palantir’s share price before adding it to your portfolio, or is it worth its current premium?

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Has Palantir’s stock finally run into some resistance?

In recent days, Palantir’s stock has been showing signs of slowing down. After hitting a new all-time high of $190 on Aug. 12, it has proceeded to trade lower. By Monday, the AI stock would close at just over $174 — down 8% from its recent high.

According to analysts, the stock may still have more room to fall. The consensus analyst price target for Palantir stock is just $136.61, which would imply a downside of over 20% from its current price.

However, this is a highly speculative stock. It can be hard to determine whether this is the beginning of a larger-scale sell-off, or simply some investors cashing out and taking their profits. After all, Palantir hasn’t suddenly become a lot more expensive. It trades at close to 600 times its trailing earnings. A few months ago, the multiple was a little lower, but still at a price-to-earnings multiple of more than 400.

The business is still generating strong growth

One of the reasons investors may be inclined to remain bullish on Palantir is that the data analytics company continues to post strong growth numbers. In its most recent quarter, which ended on June 30, Palantir’s quarterly revenue topped $1 billion for the first time, with its top line rising by 48% year over year. That’s a significant acceleration from the 39% revenue growth it achieved a period earlier.

The company also boosted its guidance this past quarter by a couple of hundred thousand dollars. It’s now expecting at least $4.1 billion in sales for the full year (versus its previous guidance of around $3.9 billion). With Palantir firing on all cylinders, it’s easy to see why growth investors have become so enamored with the stock. But that infatuation has also propelled it to a sky-high valuation, which may be difficult to maintain.

Palantir is wildly overpriced

It’s worth paying a premium for top-performing stocks, but in Palantir’s case, I believe the premium has gone far beyond being reasonable. Billionaire investor Warren Buffett says that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” But in Palantir’s case, the price for the stock is arguably not a fair one for the business, and it’s certainly not wonderful. I would call it extremely overpriced.

As promising a stock as Palantir may appear to be, that doesn’t mean it’s a good buy at any price. Not only would I not hold out for a dip in price, I would wait for a full-blown crash before even considering investing in Palantir. It is so incredibly overvalued that to buy the stock today would involve taking on a great deal of risk and relying on speculation to try to guess where it may go next, since its price isn’t grounded by any reasonable valuation metrics.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.