Palantir's Stock Faces Another Bearish Call Due to Its 'very Stretched' Valuation

Another analyst has turned bearish on Palantir Technologies Inc. shares following their strong recent performance.

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Mizuho’s Gregg Moskowitz has lowered his rating for Palantir's stock to "underperform" from "neutral" due to what he describes as "very stretched" valuation levels. This follows Monness, Crespi, Hardt & Co. analyst Brian White’s sell recommendation issued in late June.

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In a detailed note, Moskowitz highlighted his difficulty in justifying Palantir's high valuation. He pointed out that the stock now trades at 25 to 26 times calendar 2024 enterprise value to sales estimates and 21 times 2025 estimates. This represents a substantial 160% premium over the median for their enterprise software peer group for the next year.

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Despite these concerns, Moskowitz raised his price target for Palantir to $22 from $21, which is still 23% below Monday's closing price. The stock was down 1.5% in premarket trading on Tuesday. Overall, Palantir shares have risen 67% this year, compared to an 18% increase in the S&P 500.

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Moskowitz acknowledged Palantir’s strengths in artificial intelligence and its capacity to secure "megadeals," but he raised concerns about other aspects of the company. He pointed out a lack of transparency and the potential for irregular financial results.

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Specifically, Palantir’s military contracts are often secretive, and the company’s limited disclosures about revenue sources—whether from software as a service or term licenses—complicate its valuation.

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"We have limited confidence in the company's ability to deliver consistently strong results and accelerating growth, which is needed to justify the premium valuation," Moskowitz concluded.

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Similarly, Brian White from Monness, Crespi, Hardt & Co. had cited valuation concerns in his June downgrade, describing Palantir's stock valuation as “gluttonous” and out of line with other software companies.

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Currently, eight analysts tracked by FactSet have bearish ratings on Palantir’s stock, while an equal number hold bullish ratings. Additionally, six analysts maintain neutral-equivalent ratings.

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