Palantir (NASDAQ: PLTR) has managed to be comparatively resilient amid the current turmoil within the inventory market. As of this writing, the inventory is up 17% yr to this point regardless of pulling again 27% from the all-time excessive it reached in February.
That is nonetheless a premium-priced inventory, although. Palantir trades at 158 instances this yr’s anticipated earnings and 55 instances anticipated gross sales. That is a particularly bullish valuation — and one that appears even pricier contemplating macroeconomic headwinds might sluggish the corporate’s current momentum.
Whereas there is not any doubt Palantir is an costly inventory by these typical valuation metrics, there may be one other indicator that places the inventory’s price ticket in a extra affordable mild.
Although Palantir inventory appears fairly costly on a price-to-earnings foundation, there are some good the explanation why traders have been keen to pay a premium to personal the inventory. For instance, simply check out the chart beneath, which tracks the corporate’s gross sales and free money circulate (FCF) over the past yr.
For 2024, Palantir generated FCF of $1.14 billion on income of $2.86 billion. In different phrases, the corporate is producing $0.40 in free money circulate for each $1 in gross sales recorded. That is a unbelievable margin — and one that appears even higher within the context of Palantir’s prime line momentum.
Final yr, income elevated 29%, and administration tasks progress will improve to 31% this yr (on the midpoint of the steering vary). The synthetic intelligence software program supplier is posting a FCF margin that might be enviable for a worthwhile however slow-growing, mature enterprise, however its income progress has accelerated for six straight quarters.
With Palantir having established itself as a go-to supplier of highly effective analytics instruments for each business and authorities purchasers, the corporate seems poised to take care of its robust progress trajectory. In the meantime, its robust FCF margin will assist Palantir climate any commerce battle and different macroeconomic dangers. In that mild, the inventory’s price ticket is not as unreasonable as typical valuation metrics may counsel.
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