Is Palantir Technologies a no-brainer acquisition after posting record numbers?

Palantir Technologies (PLTR 0.71%) has grown over 200% in the last five years. The data analytics company has not only seen significant growth during this period, but its operations have also become profitable. The business is gaining more credibility and it may only be a matter of time before stock is added to S&P 500 index.

The tech company is coming off yet another impressive quarter that saw it hit new records. Has the stock finally proved the doubters wrong and is it a safe buy at this time?

Palantir’s growth rate continues to accelerate

A big concern I’ve had with Palantir in the past has been that the growth rate just hasn’t shown enough progress, despite all of management’s claims of incredible demand due to artificial intelligence (AI). After all, Palantir held hundreds of bootcamps with potential customers to pitch its AI-based platform, AIP, which would help them improve decision-making and unlock efficiencies in their day-to-day operations.

In the most recent quarter, which ended in June, Palantir’s revenue reached a new record of $678.1 million. It marked a 27% increase over the same period last year. And that means it’s still a quarter of the pace of business growth.

PLTR Revenue (Quarterly Yearly Growth) data by YCharts

Why isn’t Palantir stock rising?

Given its high growth rate, especially at a time when many companies are struggling due to inflation and declining consumer demand, you might wonder why Palantir stock isn’t taking off.

The problem may lie with its huge number of quotas. Palantir’s share count is quite large, with over 2.2 billion shares outstanding. Even though the company generated a strong profit margin of 20% and net income totaled $134.1 million last quarter, that still equates to earnings per share of just $0.06 when you divide that profit across all those shares .

That, in turn, affects the stock’s valuation. If the stock is trading at around $29 and the company’s annual earnings per share are just $0.17, investors are paying a massive 170 price-earnings multiple. Even on a revenue basis, the stock trades at a multiple of 29. And if you look at the price-to-earnings-growth ratio, which factors in future growth, Palantir is at a multiple of nearly 2, which is still a bit high.

While in the tech world investors are often willing to pay obscene valuations for high growth, there’s plenty of resistance for Palantir’s stock at such heights. While its growth rate is impressive, it may not be enough to justify this kind of valuation.

Palantir’s valuation is simply too rich to make a good buy right now

Palantir does many things well. It’s profitable and its business is growing, but that’s not enough to make the stock a good buy. If the company were to buy back shares and drastically reduce its share count, that could go a long way in generating more optimism around the business.

Unfortunately, without a smaller number of shares or significantly higher profits, investors may continue to find the stock simply too expensive to buy at current levels. The danger of buying at such high multiples is that investors end up paying for a lot of future growth. At a time when many stocks are starting to show signs of weakness, there may be better options for growth investors, which is why I don’t think these results will be enough to send Palantir stock much higher this year.