On Monday Nov. 4, data analytics and artificial intelligence (AI) darling Palantir Technology (PLTR -3.16%) will release earnings for the company's third quarter ended Sept. 30.
Let's dig into how Palantir stock has moved throughout 2024 and explore if investors should scoop up shares prior to the third-quarter report.
When in doubt, zoom out
As of intraday trading on Oct. 22, shares of Palantir have risen by 149% so far this year. At a share price of $42.79, Palantir stock is sitting around all-time highs.
To add some more color here, Palantir stock has rocketed by 78% since the company published second-quarter results on Aug. 5.
It's pretty clear that investors have been cheering Palantir on the backdrop of a euphoric AI narrative. However, what does all of this price appreciation really mean?
Below, I'll break down some valuation trends to help paint a more detailed picture of where the company stands.
Image source: Getty Images.
An honest assessment of Palantir's valuation
As a growth stock, valuing Palantir can be a little challenging. While the company is generating positive net income and free cash flow, both metrics are still somewhat small, so valuing Palantir on these measures isn't entirely helpful.
PLTR PS Ratio data by YCharts
As the chart above indicates, Palantir currently trades at a price-to-sales (P/S) multiple over 40. Furthermore, the company's P/S has expanded considerably over the last three months alone -- suggesting the stock has been witnessing some outsize momentum.
As I've expressed before, Palantir is a core position in my own portfolio and I am bullish on the company's long-term potential. However, the tailwinds fueling its current valuation are hard to overlook and I think the stock has gotten a tad pricey.
Keep the long-term story in mind
The chart below shows trends in Palantir stock since going public in late 2020. The purple circles with the letter "E" in the middle indicate earnings reports.
PLTR PS Ratio data by YCharts
Since the beginning of last year, shares of Palantir have generally risen following an earnings report. I think this is an important idea to keep in your back pocket, because it helps underscore the idea that Palantir stock has been a consistent winner over longer time periods -- suggesting investors have had ample opportunities to buy the stock regardless of the specific time or event.
As an investor, I'll be keeping an eye on whether or not large institutional investors continue buying shares. To me, such activity is a good indicator of how influential investors may perceive Palantir's valuation as the company continues to scale.
Is Palantir stock a buy before third-quarter earnings?
I rarely encourage trying to time stock purchases. But in the case of Palantir, there are simply too many variables that need to be addressed right now.
For starters, the end of 2024 is quickly approaching. Broadly speaking, the final months of a calendar year can experience some pronounced trading volatility as investors engage in strategies such as tax loss harvesting.
On top of that, this year's elephant in the room is the upcoming presidential election. Although it's a coincidence that Palantir is scheduled to release third-quarter earnings one day prior to Election Day, I suspect the capital markets will feature some pronounced swings in the days leading up to and following the election.
To me, there is too much unpredictability surrounding a stock such as Palantir as the end of the year approaches. I think a prudent strategy is to sit on the sidelines for now and look to take advantage of any potential sell-offs in the stock. Palantir stock will likely rise over time following third-quarter earnings, and investors need not be in a rush to pounce on the stock at this very moment.
