Analysts Predict a Steep Drop for Palantir Stock as Q3 Earnings Approach
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Before its latest quarterly report on November 4, Palantir Technologies (PLTR, Financial) faces both high expectations and skeptical analysts. However, Wall Street analysts' forecasts for the company are rather pessimistic, predicting a 40% cut in its stock value in the future despite an impressive year, with gains of 161.7% year-to-date and 197% over the past 52 weeks.
For the full year 2021, Palantir's revenue is expected to be between $2.625 billion and $2.645 billion; quarterly revenue in Q3 is expected to fall within the range of $697 million and $701 million, representing a year-over-year growth of 25-26%. This projection continues the momentum of future growth, which began with a 17% increase in Q3 of 2023 and rose to 27% in Q2 of 2024. That said, the growth trend bodes well for prospects of high performance, especially among the new clients for Palantir's Artificial Intelligence Platform (AIP) in the commercial business in the U.S. However, the stock valuation has recently become highly overpriced compared to industry standards.
Even though the core business indicators show some upbeat earnings, including customer growth of up to 593 in Q2 (a 41% year-over-year increase) and a steady deal pipeline with a total residual value of $4.3 billion, analysts are concerned about valuations. The high growth rate of contract sales and aggressive pricing have prompted most analysts to recommend that investors hold onto Palantir due to its potentially temporary ceiling.
The next quarter's earnings report is crucial for Palantir as the company needs to demonstrate that it can maintain the recent growth rate and support the current high price-to-earnings multiple or else prove analysts who see an overbought stock on the way to correction. This earnings announcement will be necessary for investors interested in understanding the sustainability of Palantir in the extended future as it establishes new trends in the IT industry's continually changing landscapes.
This article first appeared on GuruFocus.