Another earnings release appeared to leave Palantir (PLTR 0.67%) in a range-bound state. Shares had again surged above $25 per share, but investors sold the stock following the announcement of its results for the first quarter of 2024.
Palantir has not risen significantly above $25 per share since late 2021. Given the seeming inability to break through that ceiling, investors may now wonder whether the gains in the stock have already been realized.
The state of Palantir stock
Admittedly, Palantir's relatively short history brings with it uncertainty. The big-data company launched its initial public offering (IPO) in late 2020. After surging as high as $45 per share in early 2021, the stock fell quickly back to the mid-$20 per-share range, and it has not exceeded that level since.
Indeed, the stock had probably become oversold in late 2022 when it briefly fell below $6 per share, and investors who bought at that time are sitting on considerable returns.
But now, with the stock just above $20 per share, it may make sense to question whether investors have any hope of the stock rising beyond the mid-$20s per-share range.
In the first quarter of 2024, Palantir's revenue of $634 million increased by 21%. While that is a considerable increase, it does not compare to a stock like Nvidia, which has experienced triple-digit revenue growth in recent quarters.
Moreover, Palantir reported a net income attributable to common shareholders of $106 million, the sixth-consecutive profitable quarter and well above the $17 million profit in the year-ago quarter. Unfortunately for shareholders, that leaves the price-to-earnings (P/E) ratio at around 172, and measuring the valuation by the forward P/E ratio of about 63 still makes Palantir a pricey stock.
Additionally, the full-year 2024 revenue forecast calls for just under $2.7 billion. That would mean a 20% annual revenue-growth rate, which may not be enough to sustain the current valuation.
Palantir's customer growth
The level of revenue growth is perplexing, given Palantir's value proposition. Palantir operates in both the national security and commercial industries. Given the limited number of governments available to buy Palantir's services, most of the growth has come from the commercial side.
Its U.S. commercial customer count rose 69% compared to year-ago levels. Also, the remaining deal value in the U.S. commercial sector increased by 74%.
Furthermore, when talking about its latest artificial intelligence platform (AIP), the company has reported eye-popping productivity gains. Palantir stated on its Q1 2024 earnings call that Lowe's utilized AI in its customer-service department and reduced overdue tasks by 75%. Also, Cleveland Clinic was impressed enough to commit to a 10-year plan to deploy AIP across a network of hospitals.
Considering such improvements, organizations appear remiss to not contract with Palantir. However, unless that value proposition brings faster revenue increases, investors may hesitate to buy shares at today's prices.
Are investors too late?
Given Palantir's growth prospects, investors are likely not too late to buy the stock. In fact, the recent sell-off may be a good time to slowly add shares of the AI stock.
Admittedly, Palantir stock sells at a pricey valuation, and it may take some time for the stock to grow beyond the mid-$20s per-share range in the near term.
Nonetheless, the company appears to have achieved sustained profitability, and earnings should grow at a rapid clip for the foreseeable future. Moreover, the productivity gains from AIP should lead to more long-term agreements like the one signed with Cleveland Clinic.
Such improvements have made Palantir an essential AI tool for numerous companies. That factor should take its stock price back to the mid-$20s per-share range and eventually beyond.
