Wall Street May Be Too Optimistic About Palantir -- 2 Red Flags Investors Shouldn't Ignore

But earlier we each leap into the stock, here's the question investors should beryllium asking: What would person to spell close for this banal to support winning? While Palantir's concern is intelligibly growing, 2 large risks could situation the bullish narrative.

Palantir's caller results person been impressive. The institution is not conscionable increasing -- it's increasing profitably. In the 4th quarter, Palantir reported margins supra 40% and beardown escaped currency travel generation. That operation of precocious maturation and profitability is rare.

But the banal terms already reflects that success, and past some. And that's wherever things get tricky.

Palantir presently has a marketplace headdress of much than $300 cardinal contempt generating conscionable implicit $4 cardinal successful yearly revenue. At that price-to-sales level, the marketplace is already pricing years of further accelerated maturation into the stock.

For Palantir to warrant that valuation, it doesn't conscionable request to turn -- it needs to outperform expectations that are already optimistic. For perspective, if its gross continued to turn astatine 70% implicit the adjacent 2 years -- which would beryllium an awesome feat -- it would scope astir $12 billion. At its existent marketplace capitalization of $300 billion, that would springiness it a price-to-sales (P/S) ratio of 25, which is inactive a premium valuation.

If its maturation complaint slows from, say, 70% to 30%, the concern would inactive beryllium performing highly well. But the banal terms could caput successful a precise antithetic direction. That's the world investors request to support successful mind.

While the archetypal hazard is straightforward, there's a deeper question investors should consider. Is Palantir gathering a scalable bundle level oregon a highly customized solution business?

That quality matters enormously. True platforms -- similar those built by companies specified arsenic Microsoft oregon Oracle successful earlier technological cycles -- standard efficiently. Once a merchandise is complete, deployment crossed galore customers becomes speedy and comparatively cost-effective.