đ¨ Prediction: This High-Flying Growth Stock Could Stumble Hard in the Next Decade
Wall Street's darling might be heading for a reckoning.
### The Hype Train Derails?
Everyone piled inânow the smart money's eyeing the exits. This isn't your grandpa's blue chip; it's a momentum play that could faceplant when liquidity tightens.
### Growth at All Costs (Including Yours)
Those triple-digit revenue spikes? History. The next decade favors cash flow over fairy talesâand this stock's balance sheet reads like a startup's burn rate.
### The Cynic's Bonus
Funny how 'disruptive' often means 'not profitable.' But hey, at least the executives cashed out at ATHs.
Image source: Getty Images.
Wall Street's darling
Accelerating revenue growth? Check. Soaring profits? Check. Significant cash flow? Check. Strong balance sheet? Check.
The tech company checks off all of the boxes investors look for in a good growth stock. Even more, as a platform-based company designed for modern enterprises with AI and data analytics use cases, it is benefiting from companies' growing appetite for AI -- one of the market's favorite investing themes in 2025. No wonder Wall Street loves Palantir.
The company's most recent quarterly results show just how fast Palantir is growing. Its first-quarter revenue rose 39% year over year -- well above its growth rate of 36% in the prior quarter. Its customer accounts also increased 39% year over year. Further, the company flexed its scalable business model, as earnings per share doubled. Meanwhile, Palantir's quarterly adjusted free cash FLOW swelled to $370 million -- up from $149 million in the year-ago period.
Given the company's impressive momentum, management has big expectations for the full year. The company has guided for fiscal 2025 adjusted income from operations between $1.711 billion and $1.723 billion and adjusted free cash Flow between $1.6 billion and $1.8 billion. Additionally, management said it expects positive net income on a generally accepted accounting principles (GAAP) basis in every quarter of the year.
A valuation problem
Palantir bulls obviously have good reason to love the business. But sometimes good businesses's stocks can simply rise to the point that shares are no longer attractive. I'd argue we've reached that point.
Today, Palantir's market capitalization of more than $370 billion towers over the company's expected full-year sales of about $3.9 billion. Further, the company's price-to-earnings ratio of 656 as of this writing is borderline bananas. Even the ratio of price-to-management's guidance for fiscal 2025 adjusted income from operations is sitting at 218. Sure, the company deserves to trade at a premium valuation. But at a certain point, there is almost no room for error. We are at that point.
Of course, we can't rule out the possibility of Palantir living up to its current valuation. Though the odds of this happening are slim. Sure, Palantir's business will almost certainly continue to do well. But this doesn't mean the stock is attractive. Given that the stock has grown much faster than the underlying business recently, I believe the market has bid Palantir stock up too high, creating a recipe for a high likelihood of share price underperformance over the next 10 years.
