Shares of Palantir (NASDAQ:PLTR | PLTR Price Prediction) are starting to look interesting again, with shares bouncing back in recent weeks amid the war in Iran. Undoubtedly, it makes sense as to why one of the “secret weapons” of defense might be catching such a sudden bid higher. With Palantir’s top boss, Alex Karp, remarking on the edge that its technology is providing to America amid the war, it certainly feels like shares are the go-to defense stock in this new age of AI.
Karp is completely right about the power behind its technology, as tensions rise in the Middle East. Still, I can’t say I’m going to start rushing in and buying the stock now after quite a sizeable move. In my view, the more than 17% surge in the stock already prices in the Iran war, and such a sudden bounce seems to have made one of the market’s priciest stocks that much more expensive.
Michael Burry’s fair value is a long way away
Whether Michael Burry is unsettled by the recent rebound in shares of Palantir remains the big question. Either way, Burry sees Palantir stock as having a fair value of $46.00, which could entail another steep 70% drop from current levels.
Of course, predicting (and betting against) such a crash comes with high stakes, especially if things were to further escalate in the war, or if it isn’t so quick to finish. In any case, one thing Palantir stock has proven is that it’s a potentially decent hedge when war drags the recent of the stock market down.
While war worries could keep the latest upswing going strong, I must say that the valuation has me on pause, especially after seeing how low that Burry price target is.
Is $46.00 per share far lower than the Street-low target? At this time, it certainly is. But there are other notable bears on the sell-side that would have me putting Palantir stock in the “too expensive” or “too hard to understand” category, especially at a time like this, when investors are piling back into a trade that seemed destined for more pain.
The valuation is certainly up there. Could it be too high to justify?
Having a look at the sell-side camp, Jefferies’ Brent Thill also views shares of Palantir as ripe for selling. Though their price target (currently at $70.00 per share) isn’t as low as Burry’s, it does imply significant downside risk. The analysts also share concerns about the valuation, which they view as “absurd.” While the narrative has improved in recent months, even amid the slide in the stock, I really don’t know what to make of the multiple as well.
The stock goes for close to 240.0 times trailing price-to-earnings (P/E) or about 125.0 times forward P/E. Indeed, the forward multiple doesn’t make things a lot better, nor does the price-to-sales (P/S) multiple, which is just north of 86 times. There aren’t too many growth stocks that can hang onto such a massive P/S figure for all too long.
Of course, the bulls would argue that Palantir is one of those generational stocks that’s executing perfectly in the face of a generational opportunity in AI. And while there’s no denying the impressive growth (and the potential for further acceleration in this climate), any multiple north of 80 times, I think, requires a double dose of skepticism, even if you’re a risk-taker who can handle a 50-75% drop every so often.
So, is the Iran war a potential momentum booster for government contract wins?
Sure, Palantir could be in for a jolt, as analysts over at Rosenblatt noted. But how much of the recent rebound already factors this in? I’m not so sure, but let’s just say I wouldn’t dare hit the buy button with such a high multiple and several bears, including Burry, looking for a double-digit price of admission on the shares.
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