Should You Buy Palantir Stock Ahead of Monday's Q3 Earnings?

With the broader markets trading close to all-time highs, the ongoing earnings season is extremely crucial for stocks priced at a premium. If tech stocks trading at elevated valuations are unable to deliver strong earnings growth, share prices will likely experience a steep pullback in the near term. 

One such tech stock that faces particularly high stakes this season is Palantir (PLTR), which is scheduled to report its Q3 earnings after the close on Monday, Nov. 4. Let’s see if PLTR stock is a good buy ahead of its Q3 results. 

Palantir Stock Is Up 154% in 2024

Palantir Technologies (PLTR), a company co-founded by Peter Thiel, went public in early 2020 after operating as a venture-backed start-up for over 15 years. Valued at a market cap of $100.6 billion, Palantir builds and deploys software platforms for the intelligence community in the U.S. to assist in counter-terrorism operations. 

Palantir Gotham is a software platform that allows users to identify patterns hidden within large data sets. This helps operators plan and execute real-world responses to threats identified within the platform. The company also offers Palantir Foundry, which transforms how organizations operate by creating a central operating system for their data that users can easily integrate and analyze. 

Over the years, Palantir has focused on diversifying its revenue base and reducing dependency on government clients, which still account for 54% of total sales. Palantir aims to help enterprises overcome the bottleneck between artificial intelligence (AI) application prototypes and finished products that could be deployed to end users. 

PLTR stock has surged 154% in 2024, and has almost tripled in the last 12 months. In September, Palantir replaced American Airlines(AAL) in the benchmark S&P 500 Index ($SPX), pushing share prices higher. 

What to Expect from Palantir in Q3 of 2024?

Palantir turned profitable in Q4 of 2022, and its annual revenue growth has accelerated in the last four quarters, as Palantir is now leveraging artificial intelligence (AI) to acquire and engage customers. The company has raised its revenue forecast twice in 2024 as the AI boom is driving demand for its services, and Palantir reported net income of $135.6 million in the June quarter.  

During its Q2 earnings call, Palantir projected Q3 sales to range between $697 million and $701 million, above the consensus estimate of $679.1 million. For the full year, management expects sales between $2.74 billion and $2.75 billion, above estimates of $2.70 billion. Palantir also raised its annual revenue estimates from U.S.-based companies by $11 million to $672 million for 2024. 

Ahead of Monday night's Q3 report, consensus estimates are now calling for Palantir to report revenue of $701 million, on adjusted earnings of $0.09 per share. In the year-ago period, PLTR reported revenue of $533 million and earnings of $0.07 per share. So, while revenue is forecast to surge over 30%, earnings growth is estimated at 28.6% year over year. 

Is PLTR Stock Overvalued?

With 14 analysts covering Palantir stock, the consensus rating is a tepid “hold,” with only two “strong buy” ratings out of the group. The average 12-month target price for PLTR stock is $27.14, indicating a downside potential of at least 37.8% from current levels. 

In the last 12 months, Palantir has reported a free cash flow of $696 million. So, priced at 143 times trailing free cash flow, PLTR stock is quite expensive. 

Analysts expect adjusted earnings to expand from $0.25 per share in 2023 to $0.43 per share in 2025. So, priced at 104.4x forward earnings, PLTR stock might pull back if it disappoints Wall Street with its Q3 results.