This Wall Street bank sees a 65% downside risk in Palantir stock

Published 30/01/2025, 11:24
© Reuters

Investing.com -- Jefferies reiterated an Underperform rating on Palantir (NASDAQ:PLTR) stock, with its $28 price target implying a 65% downside risk from the current levels.

Jefferies analysts pointed out the challenges Palantir may face in the fourth quarter of 2024, as the company is expected to lap more difficult comparisons from the previous year. They highlighted that Palantir stock is the most expensive within the software sector, trading at 50 times next twelve months (NTM) revenue, which is more than double the valuation of its next highest peer.

“The 4Q setup will be challenging as PLTR is lapping easy comps and any signs of non-accelerating growth could lead to further multiple compression,” analysts led by Brent Thill said in a note.

The analysts also noted Palantir’s accelerated approximately $120 million in unrecognized stock-based compensation (SBC) expense associated with market-vesting stock appreciation rights (SARs) due to the stock price crossing $50 per share.

As a result, Jefferies trimmed its fourth-quarter 2024 GAAP earnings per share (EPS) estimate to $0.01 from $0.06, with no change to non-GAAP EPS. Additionally, Jefferies raised the share count to 2.488 billion from 2.474 billion to reflect the dilution from these SARs.

While Palantir’s fundamentals remain robust, the company would need to accelerate its growth to 50% for four years and trade at 13.5 times calendar year 2028 estimated revenue just to maintain its current stock price.

Palantir’s enterprise value (EV) to NTM revenue multiple has compressed by 5% year-to-date, following a 282% expansion in 2024. “The last time we saw such high magnitudes of multiple expansion was during the Covid bubble when many of the high growth names benefited from multiple expansion,” analysts said.

They believe that any negative factors, such as decelerating growth or changing interest rates, could cause further compression in the company’s valuation multiple.

In a “what if” scenario, Jefferies illustrated that even if Palantir could accelerate its growth to a 50% four-year compound annual growth rate (CAGR), the stock would still need to trade at a multiple that would place it among the richest names in software four years out, just to keep its current price level.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.