Is the overvalued Palantir stock a buy or sell ahead of earnings?

The Palantir stock price soared to a record high last week, raising valuation eyebrows, as traders waited for the upcoming financial results, which will provide more information about its business. 

PLTR rose to a high of $200 for the first time ever, up by 163% this year and almost 2,000% in the last five years. This growth has brought its market capitalization to over $475 billion.

Palantir Technologies earnings preview 

Palantir Technologies has become one of the best-performing companies in Wall Street this year. Precisely, it is the fifth-best performing companies in the S&P 500 Index after firms like Robinhood, Western Digital, Seagate, and Micron.

The surge happened as the company’s growth in the artificial intelligence industry continued soaring.

The most recent results showed that its quarterly revenue jumped by 48% to $1.004 billion as all its products experienced substantial growth.

Palantir Technologies’ US revenue jumped by 68%, with the commercial revenue soaring by 93% to $306 million and the government one soaring by 53% to $426 million.

The results showed that the company’s total contract value (TCV) jumped by 140% to over $2.27 billion, a sign that companies are interested in its products, especially AIP, which helps companies to build artificial intelligence solutions.

Palantir is also benefiting as companies embraced its platform in data and business intelligence solutions. As a result, the customer count jumped by 43% from the same period last year.

Therefore, Palantir stock price will be in the spotlight as the company publishes its financial results on Monday. These numbers will provide more color on whether its business continued growing in the third quarter.

Data compiled by Yahoo Finance shows that analysts expect its revenue will be $1.09 billion, up by 50% from the same period last year. Its earnings-per-share is expected to come in at $0.17, up from $0.1 in the previous period.

For the year, analysts expect the financial results to show that the annual revenue will come in at $4.16 billion, up by 45% from the same period last year. Its 2026 revenue is expected to be $5.62 billion.

Palantir has always been highly conservative when delivering its guidance. Therefore, there is a likelihood that its revenue and earnings will be better than expected.

Valuation concerns remain

The main concern about Palantir is that it has become one of the most overvalued companies in the United States. Besides, it has a market capitalization of nearly $500 billion and is now expected to make over $4.16 billion in revenue this year.

These numbers mean that the company has a forward PE ratio of 464 and a non-GAAP multiple of 309. These are huge numbers for a company that was started in 2003. 

For example, Nvidia, which has faster revenue growth and margins than Palantir has a forward PE ratio of 46.2.

Palantir prefers to use the rule-of-40 valuation method, which looks at its revenue growth and its margins. In its last results, it estimated that it had a rule-of-40 metric of 94%.

Palantir stock price technical analysis 

The daily timeframe chart shows that the PLTR stock price has been in a strong uptrend this year and is now hovering at its all-time high.

It recently crossed the important resistance level at $190, its highest level on August 14. Moving above that level means that it has invalidated the forming double-top pattern. The stock has moved above all moving averages and the Supetrend indicator.

Therefore, the most likely scenario is where Palantir publishes strong numbers on Monday and the stock continues to rise despite its valuation concerns. If this happens, the next key level to watch will be at $225. 

The other scenario is where the stock retreats and retests the support at $190 and then resumes the uptrend.

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