After Leaping 29% Palantir Technologies Inc. (NYSE:PLTR) Shares Are Not Flying Under The Radar

Despite an already strong run, Palantir Technologies Inc. (NYSE:PLTR) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 148% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Palantir Technologies' price-to-sales (or "P/S") ratio of 35.4x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.6x and even P/S below 1.9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Palantir Technologies

What Does Palantir Technologies' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Palantir Technologies has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Palantir Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Palantir Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Palantir Technologies would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Pleasingly, revenue has also lifted 87% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 22% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 19% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Palantir Technologies' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Palantir Technologies' P/S Mean For Investors?

Palantir Technologies' P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Palantir Technologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Palantir Technologies you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.