Analyst explains why Palantir stock may underperform in 2025

Investing.com -- Palantir stock may face more downside in 2025 amid multiple compression risks, Jefferies analysts said Monday.

The company’s shares have declined by 15% year-to-date (YTD), yet the stock still trades at 46 times enterprise value to next twelve months revenue (EV/NTM rev), which is over twice the valuation of the next highest software company. This valuation comes after the stock experienced a 341% rally in 2024.

Jefferies analysts note that insider selling has been on the rise, with CEO Alex Karp selling more than $2 billion worth of Palantir (NASDAQ:PLTR) stock and other executives selling over $600 million in the past five months. The increase in insider selling through Rule 10b5-1 trading plans could potentially create an overhang on the stock.

Palantir stock saw its EV/NTM revenue multiple contract by 15% YTD, dropping from 55 times to 46 times, following a 282% expansion in the multiple during 2024.

“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,” analysts led by Brent Thill said in a note.

“However, we are now in a more normalized macro environment, and we think any negative factors (changing interest rates, AI hype turns, insider selling, etc) may cause PLTR's multiple to further compress,” they added.

Analysts also point out that the composition of Palantir's shareholder base has shifted recently, with active institutional ownership increasing by five percentage points to 32% after the company's inclusion in the Nasdaq 100 on December 23, 2024. This change, according to the analysts, could diminish the retail premium moving forward.

Jefferies reiterated an Underperform rating on Palantir stock and the price target of $28, which implies a downside potential of more than 56% from the last closing price.