Jefferies sees nearly 60% downside risk for Palantir stock

Investing.com -- Palantir Technologies (NYSE:PLTR) saw its shares soar 257% year-to-date (YTD) driven by multiple expansion.

According to Jefferies analysts, Palantir's current trading multiple of 43 times its calendar year 2025 revenue is over twice that of the next highest software company.

Following the stock's addition to the S&P 500, retail ownership has decreased by 7 percentage points to 42%, while institutional ownership, both index and active, has risen by 4 and 3 percentage points respectively, to 25% and 27%.

Jefferies also noted the unprecedented surge in Palantir's near-term revenue multiple, which has expanded by 202% YTD, now trading at 43 times enterprise value to next twelve months (NTM) revenue.

“The last time we saw such high magnitudes of multiple expansion was during the Covid bubble when many of the high growth names saw their multiples significantly expand at the same time,” Jefferies analysts led by Brent Thill said in a note.

“However, we are now in a more normalized macro environment and PLTR stands alone with its YTD multiple expansion >4x the next highest infra peer,” they added.

Jefferies also highlighted recent insider trading activity within Palantir, pointing out the increased frequency of insider selling through Rule 10b5-1 trading plans as the stock has rallied.

For instance, CEO Karp has sold nearly 40 million shares for more than $1.9 billion over the last three months. His current trading plan permits the sale of an additional approximately 9 million shares through May 2025, which could further impact the stock's performance.

Citing this, alongside the “unsustainable multiple”, Jefferies analysts reiterated an Underperform rating on Palantir stock. The firm set a price target of $28, implying nearly 60% downside from current levels.

Analysts also pointed out the recent changes in PLTR shareholder composition, which they partially attribute to the stock’s inclusion in the S&P 500. This led to index funds buying shares and thus increasing index shareholder ownership.

The company's recent decision to transfer from the NYSE to the Nasdaq and its intention to join the Nasdaq 100 is seen as a move to further attract index shareholder ownership, although it is not expected to alter the shareholder mix to the same extent as the S&P 500 inclusion.