Palantir is currently valued as one of the most expensive large-cap US stocks ever, with a $314 billion market capitalization, placing it among the top 30 constituents in the S&P 500, between Coca-Cola and Bank of America. Its trailing P/E ratio is 565x and forward P/E is 228x, but its sales multiples are even more extreme. Trivariate Research, led by former Morgan Stanley chief US equity strategist Adam Parker, notes that Palantir's enterprise value to forecast sales ratio is among the highest seen in established US non-financial stocks since the start of the century.
Parker's analysis indicates that only six companies have traded at a higher EV-to-forecast-sales ratio than Palantir today. The report draws parallels to the dot-com bubble, where network widget and software makers routinely traded at triple-digit sales multiples. Stocks that reached 30 times forecasted sales in Trivariate's screen have historically underperformed the S&P 500 by an average of 22.5% over the following year, typically seeing their trading multiples drop to 18 times sales.
The S&P 500 rebalance at the end of June is expected to increase Palantir's index weighting, potentially prompting active managers to scrutinize its valuation more closely. Despite its impressive revenue growth, with an 85% increase in the first three months of the year and adjusted earnings up 61%, analysts suggest Palantir's valuation is still not justified by its fundamentals. The company's stock is down 35% this year, following a 65% decline in 2022, yet it still trades at approximately 130 times its trailing earnings and 80 times its estimated future earnings, leading some to advise avoiding the stock due to its high price and alternative attractive investment options like Micron Technology and SpaceX.
