It’s easy to build a bullish argument for Palantir Technologies (NYSE:PLTR), a well-known provider of security products and services. Yet, while acknowledging the company’s growth opportunities, I encourage you to be cautious with Palantir stock. It’s just too pricey, and the optimism surrounding Palantir is overdone.
Sure, it’s tough to be a contrarian or a value-focused investor when everybody and his uncle loves Palantir Technologies. Looking at both sides of the Palantir bull-bear debate could save your portfolio from what I call the “buy high, sell low” syndrome.
You Know the Palantir Bull Case – and So Does Everyone Else
I’ll be the first to admit that there are plenty of bullish news items pertaining to Palantir Technologies. For one thing, Palantir just struck a software deal with Oracle (NYSE:ORCL). More specifically, Palantir will offer its software products through Oracle’s cloud-based platform.
Along with that, the bulls can point to Palantir Technologies’ Army contracts and five consecutive quarters of GAAP-measured profitability. They can also be optimistic about Palantir’s artificial intelligence embedded products, especially the company’s Artificial Intelligence Platform.
But then, there are no secrets here and the highly efficient market already knows about Palantir Technologies’ future growth drivers. This explains why PLTR stock recently zoomed past $20 even though it was just $8 a year ago.
No, Palantir Stock Is Not ‘On Sale’
“Palantir is on sale and I’m buying for future generations.” That’s a direct quote from Stephen Guilfoyle of TheStreet Pro, and the aforementioned positive growth catalysts might seem to back up his point of view.
It’s fine to buy Palantir stock “for future generations,” but it’s hard to support the contention that the stock is “on sale.” Analysts with Monness, Crespi, Hardt & Co. called Palantir Technologies’ valuation “excessive,” and I concur 100%.
Even Guilfoyle admitted Palantir stock “trades at 74 times forward-looking earnings… 25 times sales, and 15 times book” value. The last time I checked, Palantir Technologies has an eye-watering GAAP trailing 12-month price-to-earnings ratio of 252.22x.
Sure, the Palantir Technologies bulls might feel that Palantir stock is a bargain at any price. This idea might make sense if you plan to hold the shares “for future generations,” as Guilfoyle apparently does.
Yet, given Palantir’s alarming valuation, contrarian investors should wait for a share-price pullback before taking a long position.
Wait for Palantir Stock to Actually Be ‘On Sale’
It’s hard to be patient when there are identifiable growth catalysts for Palantir Technologies. At the same time, valuations do actually matter and Palantir shares aren’t really a bargain if the market already priced in the company’s future growth.
So, be patient and let Palantir stock come down to a more attractive price point; personally, I’m waiting for $17.50. Then, at least you can say with confidence – and with justification – that Palantir Technologies shares are actually “on sale.”
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.