PLTR & DIS Earnings Reactions Suggest The Market Is Overvalued
On Monday, the S&P broke through its 50 DMA and it is marginally up again Tuesday morning. It is now towards the top of the range that it has been trading in since the March 28 high around 5250. But beneath the surface, reaction to Palantir (PLTR) and Disney (DIS) earnings suggest the market is overvalued and possibly out of gas.
Palantir (PLTR) is a very popular stock among retail investors partly because of the mystique surrounding what it does. In the “About Palantir” section of their press releases, PLTR describes its business this way: “Foundational software of tomorrow. Delivered today.” The stock has bounced back from a nasty 2022 and rallied hard over the last year and four months – though it has not reached its all time high made at the end of 2021. It is currently -14% in Tuesday’s session in reaction to 1Q24 earnings released Monday afternoon.
The report wasn’t bad IMO. Revenue was +21% and Adjusted EBITDA +76% compared to the year ago quarter. They guided 2Q24 revenue growth to +22%. The problem, I believe, is the valuation. Even after today’s drop, PLTR is trading at 60x its full year 2024 Adjusted Operating Income guidance of $868 – $880 million. I’m not going to judge if PLTR really has the software of tomorrow delivered today because I’m not qualified. But 60x is quite high for a company growing its top line at 20%.
While Disney (DIS) hasn’t rallied as hard as PLTR, it has had a nice move over the last 6 months and I believe it’s overvalued as well. Again, 1Q24 earnings out Tuesday morning looked fine to me. Disney+ subscribers increased more than 6 million from the end of the previous quarter to 117.6 million. Though revenue was only +1% compared to the year ago quarter, Segment Operating Income increased 17% as margins improved significantly. But DIS is -10% this morning in reaction to the report. Again I think it’s because DIS is at least fully valued at 24x my 2024 EPS estimate of $4.42.
Even though the S&P broke through its 50 DMA, then, I remain bearish because of what appears to be a slowing economy and an overvalued market.