Palantir (PLTR -0.22%) has managed to be comparatively resilient amid the current turmoil within the inventory market. As of this writing, the inventory is up 17% yr so far 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 occasions this yr’s anticipated earnings and 55 occasions anticipated gross sales. That is a particularly bullish valuation — and one that appears even pricier contemplating macroeconomic headwinds might gradual the corporate’s current momentum.
Whereas there is not any 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 mild.
Palantir is producing loads of money
Regardless that Palantir inventory appears fairly costly on a price-to-earnings foundation, there are some good the reason why traders have been keen to pay a premium to personal the inventory. For instance, simply check out the chart under, which tracks the corporate’s gross sales and free money move (FCF) over the past 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 high line momentum.
Final yr, income elevated 29%, and administration initiatives development will improve to 31% this yr (on the midpoint of the steering vary). The factitious 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 industrial and authorities shoppers, the corporate seems poised to keep up its sturdy development trajectory. In the meantime, its sturdy FCF margin will assist Palantir climate any commerce battle and different macroeconomic dangers. In that mild, 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.
