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Palantir's Q4 results were astounding, "eviscerating" (their words in the press release) the consensus. I looked that up—it means "disemboweling." Revenue skyrocketed 36% YoYr, and its free cash flow (FCF) margin hit 63%—both disemboweling consensus estimates.
As a result, PLTR stock is up over 25% today in midday trading at $105.20. Will anything stop this stock?
It has risen like a rocket ship over the last 3 months, up almost 100%:
The title of Palantir's press release says it all:
Seeking Alpha reports that the $827.5 million in Q4 revenue was $51.61 million higher than estimates (i.e., +6.65% higher). Is that eviscerating? Maybe, maybe not.
For example, last quarter (Q3 2024), Palantir produced +30% Y/Y quarterly revenue growth. And its FCF margin was extremely high at 60% (i.e., adj. FCF / sales).
Nevertheless, to the “eviscerating” point, these Q4 results show that revenue growth is now accelerating (i.e., 36% Y/Y revenue growth in Q4 vs. 30% in Q3), and margins are expanding (i.e., 63% in Q4 vs. 60% in Q3).
Moreover, Palantir previously guided that it would generate “in excess of” $1 billion in adjusted free cash flow for 2024. It came in at $1.249 billion for all of 2024. That is 25% higher than its guidance - i.e., “eviscerating.”
Analysts Are Stuck
It's not like sell-side analysts have been any help to investors on PLTR stock. Virtually all have had price targets that are too low. For example, Yahoo! Finance reports that the average of 23 analysts was $77.94 per share. Similarly, Barchart's mean price target from analysts is $47.29, with a high of $90 per share.
Moreover, even Anachart, which tends to have more recent analyst recommendations factored in its average, reports a $79.26 average from 15 analysts. For example, the table below shows that one analyst recently raised his target price (Daniel Ives of Wedbush) to $90, from $75.00
And he has been right about 90% of the time (i.e., a 90.91% Price Targets Met Ratio). The point here is that analysts are behind events and cant' seem to predict what is really going on.
I am no better. In my last Barchart article on PLTR stock, I suggested that at $82 it was at a peak (Dec. 25 - “Unusual Options Volume in Palantir Puts Could Signal a Stock Peak”).
Where did I go wrong?
Projecting PLTR's Value
The company's new guidance is for revenue growth of $3.471 billion - $3.757 billion. That is very specific - i.e., 3 decimal points. It represents 2025 Y/Y growth of +30.5% to 31.09% over 2024 revenue of $2.866 billion.
Moreover, its projection of $1.57 - $1.7 billion in adj. free cash flow (FCF) represents Y/Y growth of +20% to 36% over 2024 adj. FCF of $1.249 billion.
But, let's look at that more carefully. Let's assume the company is being conservative. So, if we take $1.6 billion and divide it by the average revenue estimate of $3.614 billion, the adj. FCF margin could be 44.3%.
That seems way too low, given that Palantar's average FCF margin for the past 3 quarters has been 48.3%, and in the past 2 quarters it has been over 60%.
So, let's use a 50% adj FCF margin estimate. Moreover, analysts now project $4.57 billion in sales for 2026. For the next 12 months (NTM), Palantir will be on a run rate revenue of just over $4 billion.
As a result, here is the NTM FCF forecast:
0.50 x $4.07 billion NTM revenue = $2.035 billion Adj. FCF.
New Price Target for PLTR Stock
For simplicity's sake, let's use a $2 billion forecast. Using a 0.75% FCF yield metric (the same as a multiple of 133x, that implies its market cap could rise to $266.67 billion.
That is 11.5% higher than today's market cap of $239 billion. It implies a potential high price of $117 per share (i.e., $105 x 1.115).
However, using a 100x multiple (the average for high-flying tech stocks), the stock would be worth $200 billion (i.e., $2 billion x 100x). That is 16.3% lower than today's market cap of $239 billion. That implies a price target of $87.89 per share.
The average between these two is $102.45 per share.
Based on this, it looks like at today's price, PLTR stock is now fully valued. However, if the company's average FCF margins remain at over 60% going forward, all bets are off. The stock could rise again to a much higher level.
