First of all, PLTR price at current level is clearly overvalued. There are multiple reasons for this, driven by its blowout earning, Trump win, as well potential of being added into QQQ. All in all, momentum is probably driving at least 20% bubble value into the stock price at current level. This is why I bought put hedge on Thursday to protect the potential downside to 50.
Long term valuation side, we want to use foward 12 months looking finanicals, instead of trailing 12 months result. As it stands right now, Wall street is expecting 3.47B revenue and 0.56 EPS in 2025. Obviously, even with this forward metrics, stock still looks expensive.
However. PLTR delivered some outstanding result in the most recent Q3, and it has fundamentally changed analyst's projection in 2 areas (These projections have not been reflected in the above 2025 numbers, and I expect analyst will publish their revisions in next couple of weeks)
- PLTR showed "substaintial" growth in the commerical sector. It grew 54% and now accounts for 40% of PLTR's revenue. This is considered as a blowout. The thesis right now is that no one really knows how big AI will become and for now people believe PLTR will not slow down and we should see this hyper growth continue.
- Second is that PLTR has exceeded operating margin expectation by almost 400bps (38% vs 34% expected). This is an early sign of scaling as people believe PLTR's margin will keep increasing with more and more customers adopting the solution
All together, I expect wall street will revise 2025 projection to be closer to 3.8B revenue and EPS in the range of 0.65, with company growing at 45% speed. If we assign a PEG (PE vs Earning growth) of 1.5, that will give us a very aggresive PE ratio of 70, which translate to a stock price of roughly $45 in 2024.
