Palantir Technologies Inc. (PLTR) could see its valuation compression risk extend into 2025, according to Jefferies analysts, who downgraded the stock to the short side on Monday. Palantir’s stock, down 10.37% year-to-date, currently trades at a hefty enterprise value to next twelve months’ revenue (EV/NTM rev) multiple of 46 times. This valuation stands significantly higher than those of its closest software industry peers. This high valuation comes after the stock surged by more than 340% in 2024, giving it at $84.80/52-wkh a market cap of $169.6 billion.
The firm has been grappling with a notable amount of insider selling, which has raised red flags among investors. Over the last five months, executives other than the CEO have sold shares worth $600 million, while CEO Alex Karp has sold more than $2 billion worth of stock under Rule 10b5-1 trading plans. This substantial insider selling activity is seen as potentially bearish for the stock, acting as an overhang that might deter potential investors.
Palantir’s valuation has already experienced a contraction, dropping from a multiple of 55x to 46x EV/NTM revenue this year. Analysts at Jefferies draw parallels between this trend and the post-COVID normalization of stock valuations. They cite factors such as changing interest rates, diminishing AI hype, and continued insider selling as elements that could lead to further compression of the stock’s value.
The composition of Palantir’s shareholder base has also shifted, adding another layer of complexity to its market performance. Following its inclusion in the Nasdaq 100 in December 2024, active institutional ownership has increased by five percentage points to 32%. This change might erode the stock’s retail-driven premium, altering investor dynamics in a way that could influence the stock price negatively.
Jefferies has given Palantir an “Underperform” rating with a price target of $28, suggesting a potential downside of more than 57% from its current price. They argue that the stock is currently trading at an aggressive overvaluation, which, combined with the aforementioned factors, paints a cautious picture for investors looking at Palantir’s future stock performance.
Price Action: Palantir shares are currently experiencing a $2.16 or 3.33% gain, trading at $67.27.
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