Palantir (PLTR -0.22%) has managed to be comparatively resilient amid the latest 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 an especially bullish valuation — and one that appears even pricier contemplating macroeconomic headwinds may gradual the corporate’s latest momentum.
Whereas there is no doubt Palantir is an costly inventory by these standard valuation metrics, there’s one other indicator that places the inventory’s price ticket in a extra cheap gentle.
Palantir is producing lots of money
Though Palantir inventory appears to be like fairly costly on a price-to-earnings foundation, there are some good explanation why traders have been prepared 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 move (FCF) during the last yr.
Information by YCharts.
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 move for each $1 in gross sales recorded. That is a implausible margin — and one that appears even higher within the context of Palantir’s prime line momentum.
Final yr, income elevated 29%, and administration tasks development will improve to 31% this yr (on the midpoint of the steerage vary). The unreal intelligence software program supplier is posting a FCF margin that might be enviable for a worthwhile however slow-growing, mature enterprise, however its income development 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 keep up its robust development trajectory. In the meantime, its robust FCF margin will assist Palantir climate any commerce battle and different macroeconomic dangers. In that gentle, the inventory’s price ticket is not as unreasonable as typical valuation metrics would possibly recommend.
Keith Noonan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot has a disclosure coverage.
