Palantir Technologies: Solving the Mystery of an Exploding Stock with an Astronomical P/E Ratio

Rainsy Sam ()
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Rainsy Sam: International Management School Geneva (IMSG)

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Abstract: As of August 1, 2025, Palantir Technologies has captured investor attention with a stock price that has surged by nearly +500% over the past twelve months, despite posting a Price-to-Earnings (P/E) ratio of 670—a figure that, under conventional valuation standards, would typically suggest massive overvaluation or market irrationality. Yet such a dramatic rise in price challenges the validity of traditional metrics like the P/E ratio and PEG ratio when applied to high-growth, disruptive technology firms. This article introduces the Stock Internal Rate of Return Including Price Appreciation (SIRRIPA) as a more advanced and rational valuation tool. SIRRIPA incorporates three key elements ignored by traditional metrics: earnings growth, the time value of money through discounting, and capital gains. By comparing this internal rate of return to a neutral benchmark such as the risk-free rate (typically the 10-year U.S. Treasury yield), SIRRIPA provides a risk-adjusted framework that resolves the apparent paradox: Palantir can be both extremely expensive on a P/E basis and fundamentally undervalued based on forward-looking, risk-sensitive metrics. Through the SIRRIPA lens, the explosive rise in Palantir's stock price is not a mystery or an anomaly—it is consistent with strong fundamentals, once appropriately adjusted for growth expectations and investor-required returns.

Keywords: high-growth stocks; investment performance.; rational pricing; financial modeling; equity valuation; undervaluation; YTM for stocks; potential payback period (PPP); stock market fundamentals; risk-adjusted return; CAPM; discount rate; earnings growth; internal rate of return; SIRRIPA; stock valuation; P/E ratio; Palantir Technologies (search for similar items in EconPapers)
Date: 2025-08-07
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05203105

DOI: 10.5281/zenodo.16748333

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