On Thursday, Jefferies, a global investment banking firm, downgraded shares of Palantir Technologies Inc . (NYSE: NYSE:PLTR), shifting the rating from Hold to Underperform. The new price target set by the firm is $28.00, indicating a cautious perspective on the stock's future performance. The downgrade is primarily attributed to the company's high valuation compared to its peers in the software industry.
Palantir's current valuation, at 38 times its estimated revenue for the calendar year 2025, positions it as the most expensively valued software company. This is more than double the valuation multiple of CrowdStrike Holdings, Inc. (NASDAQ: NASDAQ:CRWD), which has the next highest multiple in the sector. Additionally, there has been a noted increase in insider selling at Palantir, with transactions being executed under prearranged trading plans known as 10b5-1 plans.
The investment firm highlighted that while Palantir's fundamentals remain solid, the company would need to accelerate its growth to 40% annually over the next four years. Moreover, to merely maintain its current stock price, Palantir would have to trade at 12 times its projected revenue for the calendar year 2028, a scenario the analyst finds improbable.
The lowered price target of $28.00 is based on 19 times the projected revenue for the calendar year 2025. This valuation is significantly higher than the average large-cap company, which trades at approximately 12 times projected revenue. Jefferies' stance suggests that the firm is waiting for a more favorable entry point before taking a positive position on Palantir's stock.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Jefferies' downgrade of Palantir Technologies. Despite the cautious outlook, Palantir's financials show some positive trends. The company's revenue for the last twelve months as of Q3 2024 stands at $2.65 billion, with a robust revenue growth of 24.52% over the same period. Notably, Palantir boasts an impressive gross profit margin of 81.1%, underscoring its operational efficiency.
However, aligning with Jefferies' concerns about valuation, InvestingPro data reveals that Palantir is indeed trading at high multiples. The company's P/E ratio is a lofty 255.86, and its Price to Book ratio stands at 28.12, both indicating a premium valuation compared to industry peers.
InvestingPro Tips highlight that while Palantir's net income is expected to grow this year, and the company has been profitable over the last twelve months, it is trading at high earnings, EBIT, EBITDA, and revenue valuation multiples. This supports Jefferies' view on the company's elevated valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 23 additional tips for Palantir, providing a deeper dive into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.