I suspect you've heard of Palantir (PLTR 3.68%) -- if only because of its recent rise. Over the past year, its stock is up 407%, and its average annual gain over the past three years is 183%. Like lots of people, I have been watching Palantir from the sidelines, wishing it had been in my portfolio for a few years.
I'm still intrigued by it and would consider buying it -- if it weren't for the stock's valuation. Those who buy into stocks without regard for how they're valued can pay a steep price. A company can be of the highest quality, with great growth prospects, but if you buy shares when they're grossly overvalued, you might see them head south instead of north in the years to come.
Image source: Getty Images.
Before looking into whether I (or you) should invest in Palantir, here's a review of what it does. It specializes in artificial intelligence (AI) software that helps companies and governments (the U.S. government has been a major customer) mine and analyze data and make decisions. It's been growing its business (not just its stock) rapidly -- for example, boasting 485 business customers recently vs. only 14 a few years ago, and many foresee plenty of further growth ahead.
Now, about that valuation. Consider first that the S&P 500 index of 500 of America's biggest companies had a recent forward-looking price-to-earnings (P/E) ratio of about 23. And that fast-growing Nvidia had recent one of 41.5. Palantir's? It was recently 211. The S&P 500's price-to-sales ratio was recently 3.4 and Nvidia's 28. Palantir's: 136. You get the picture.
That's what one might call "priced to perfection," meaning that if anything were to go wrong, the stock might crash, as the high price assumes a lot of things going right. One threat, for example, is Salesforce recently entering the national security software realm.
So for me, I'll remain watching from the sidelines, probably into 2026, waiting for a better opportunity.
