Is Palantir the Next Company on Wall Street to Split Its Stock?

After a year of notable stock splits from firms like Nvidia, broadcom, and chipotle pepper, the market has taken a bit of a breather. However, that could shift soon. Speculation is rising about an anticipated stock split from Palantir (PLTR +3.04%), which might be announced shortly.

The significance of stock splits

Understanding stock splits is fairly straightforward. The company creates additional shares for all current shareholders, reducing the price per share proportionally so that the overall value remains the same. In a 10-for-1 split, you’d end up with ten times the shares, yet each one would be worth only one-tenth of the previous value.

In principle, stock splits might not seem crucial to investors. But they do tend to spark interest. It could be coincidental since companies initiating splits often already demonstrate strong performance. Still, lower share prices might attract new investors, creating a growth vibe.

It’s worth mentioning that last year, leading up to their splits, Chipotle, Nvidia, and Broadcom saw stock price increases of 66%, 121%, and 170%, respectively.

The split rumor mill

So, will Palantir go through with a stock split? An analyst from RBC Capital recently suggested that the retail world is buzzing about it, and that’s been the case for a while. But who knows if or when Palantir will actually announce this? With its share price having surged over 330% in the past year, it wouldn’t be surprising. Yet, I’m not personally invested in that scenario.

Let’s not kid ourselves; splitting isn’t a magic solution. At best, it’s just a temporary boost, and investors should keep their eyes peeled for the long haul and on Palantir’s core business performance. For instance, Nvidia and Broadcom have seen continued stock price growth after good performance results, while Chipotle’s stock has dipped almost 30% since its split announcement due to stagnation.

The strength behind Palantir

Palantir appears solid here. The company is still profitable, showing double-digit growth in both sales and profits each quarter—something not all its competitors are achieving at the moment. Palantir highlights the practical advantages of AI.

It stands out by customizing its AI applications for individual clients, even deploying dedicated “forward deployment engineers” to directly assist them.

This tailored approach makes AI solutions more practical and appealing for clients, crucial for long-term success. Coupled with a good rapport with the federal government, this strategy has played a big part in boosting both sales and profits, as shown in the associated graph.

PLTR EPS dilution (TTM) Depends on the data Y chart.

A strong company, but is it overvalued?

Sometimes investors fixate on waiting for the ideal opportunity and risk missing out on better choices. However, the truth is that a great company doesn’t always equal a sound investment. Considering Palantir’s current valuation, it seems quite inflated, if not extremely so.

The stock carries a price-to-earnings ratio (P/E) of over 620, which is quite high. For Palantir to approach a reasonable valuation, it would need to increase its revenue dramatically. Even then, its P/E would still be nearly double that of alphabet. For my part, I’d steer clear of investing in Palantir, regardless of whether a split happens or not.