Is Palantir Technologies (PLTR) Undervalued After Its Selloff Despite Strong Growth And New Contracts?

Palantir Technologies (PLTR) has come under pressure as risk-off trading hit growth and AI software stocks, even while the company reports strong revenue growth, fresh contracts, and new partnerships across government and commercial markets.

See our latest analysis for Palantir Technologies.

Despite the new contracts and partnerships, Palantir Technologies’ share price has been under pressure, with the stock down 32.72% on a year to date share price return basis and posting a 21.06% decline over 90 days, even though the 3 year total shareholder return is very large. The latest 1 day share price return of 5.28% hints at a tentative bounce after a sharp reset in expectations, as investors weigh high valuation concerns, contract noise in Europe, and the broader rotation away from high growth AI software stocks.

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So with Palantir Technologies growing revenue rapidly, winning new AI contracts and partnerships, yet trading well below analyst price targets and recent highs, is this selloff finally creating a genuine opportunity, or is the market simply pricing in years of future growth already?

Price-to-Earnings of 118.7x: Is It Justified?

Palantir Technologies closed at $112.93, and on a P/E of 118.7x the stock is priced well above many software peers, even after the recent selloff.

The P/E multiple compares the current share price with earnings per share and is often used for profitable software companies where investors focus heavily on future earnings power rather than current income alone.

For Palantir Technologies, the very high P/E sits against a backdrop of rapid forecasts and recent results. Earnings are forecast to grow 31.9% per year, which is above the wider US market, while revenue is forecast to grow 30.9% per year and is also expected to outpace the US market. The company has recently become profitable over the past 5 years with earnings growth of 78.9% per year, and earnings growth over the past year was very large compared to both its own 5 year average and the broader Software industry.

Even with that profile, the market is assigning Palantir Technologies a P/E of 118.7x, which is far higher than the US Software industry average of 26.1x and above the peer average of 64.6x. It is also expensive compared to an estimated fair P/E of 57.4x that reflects where the multiple could move if pricing aligned more closely with underlying fundamentals.

Explore the SWS fair ratio for Palantir Technologies

Result: Price-to-Earnings of 118.7x (OVERVALUED)

However, Palantir Technologies still faces risks if high expectations around AI software adoption cool, or if government and commercial contracts experience delays or heightened scrutiny.

Find out about the key risks to this Palantir Technologies narrative.

Another View: What the SWS DCF Model Says About Palantir Technologies

The P/E of 118.7x paints Palantir Technologies as expensive, but the SWS DCF model points in a different direction. On this view, the stock at $112.93 is trading about 18.4% below an estimated future cash flow value of $138.31. This frames the recent pullback as a potential discount rather than pure over-enthusiasm. Which lens do you trust more when the signals conflict?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Palantir Technologies for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mixed signals around Palantir Technologies leave you uncertain, use that tension as a prompt to move fast and test the data yourself. To see which potential bright spots others are focused on, review the 3 key rewards.

Looking For More Ideas Beyond Palantir Technologies?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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