Looking at Wall Street analysts' one-year price target can be a good exercise when investing in a stock. While it shouldn't be the end-all decision on establishing a position, it's nice to understand what others are thinking about a stock you think will go up.
As for Palantir (PLTR 0.51%), 12 Wall Street analysts have a median price target on Palantir's stock of $8.25, indicating a 41% drop from today's levels. That's obviously a big warning sign, but are they right? Let's take a look.
Palantir's business demand has generated impressive gains
Palantir has been one of the primary names investors have taken an interest in since artificial intelligence (AI) has become a significant investment theme. Its products heavily utilize AI, and allow its users to input information and then receive actionable insights on how they should act on the information as it comes in. This solution has been deployed to various governments, as well as for commercial applications.
With the stock up roughly 120% year to date, it has already seen an incredible run. Still, by some measures, this run-up should have been expected because of the low valuation it entered the year at.
PLTR PS Ratio data by YCharts
When a high-margin software company trades at seven times sales, it's usually because investors have lost faith or are concerned about future growth. Until Palantir's Q1 earnings report was released on May 8, it didn't have enough growth to warrant a higher valuation. But with management seeing "unprecedented demand" for its AIP product (artificial intelligence platform), investors got excited.
Furthermore, Palantir increased its earnings guidance from profitable for all of 2023 to profitable every quarter in 2023.
As a result of its profitability and bullish outlook, the stock rallied 124%, although that number has come down to about 90% in the past few days with some stock weakness. As a result, some of Wall Street's estimates have gotten slightly outdated, with a few analysts not updating their guidance since the positive news was delivered during the Q1 report.
However, a handful of rating agencies, like Goldman Sachs, Citigroup, and Credit Suisse, have updated their price targets, but remain well below where Palantir is trading now.
| Analyst Firm | Update Date | Target Price | Indicated Movement |
|---|---|---|---|
| Goldman Sachs | 6/6/2023 | $10 | (32%) |
| Citigroup | 5/10/2023 | $6 | (59%) |
| Credit Suisse | 5/10/2023 | $11 | (25%) |
Data source: Benzinga.
So does that mean it's time to ditch Palantir's stock? I don't think so.
Price targets are just opinions
An analyst's opinion is just that -- an opinion. Other firms like Raymond James and Bank of America have price targets of $18 on the stock, so there are mixed opinions on Palantir.
But do these targets really matter? In my opinion, not really.
These price targets are only for one year in the future, which doesn't qualify as a long-term mindset. Palantir has a long growth runway ahead of it, and if investors are worried about if the stock is over- or undervalued in a one-year timeframe, they could miss some truly extraordinary companies.
Investors need to focus on the long term, as it is the advantage we hold over many professional investment firms. With Palantir's deep government relationships, plus commercial revenue growing at a strong rate, Palantir is in a great position to provide years of shareholder returns.
Although the stock has gotten pricey at 16 times sales, it's still one to consider as a small position in your portfolio.
If AI has the effect many anticipate it will, Palantir will become a go-to solution for decision-focused AI-assisting software. That alone makes Palantir an intriguing investment, despite what some Wall Street analysts believe.
