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I aim to invest money into my ISA and SIPP regularly to build long-term wealth. As such, I’m always on the lookout for stocks to buy.
However, after digging into the following pair, I’m going to avoid them. Here’s why.
The last time I looked at Trump Media & Technology Group (NASDAQ:DJT) in November 2024, I was very bearish. Back then, the owner of social media platform Truth Social traded for $31, which put the stock on an obscene price-to-sales (P/S) ratio of 1,000+.
Fast forward to now, Trump Media stock has crashed 64% to $11.30. Yet the P/S multiple is still 737!
In essence, this means that investors are paying $737 for every $1 of revenue the company generated over the previous year. Typically, this would indicate that the business was growing tremendously.
In Q3, however, revenue actually declined 4% year on year to $973k, while the net loss ballooned to almost $55m, including $20.3m in legal expenses. For the whole of 2024, Trump Media reported just $3.8m in revenue and a $401m net loss.
Now, to be fair, the company has diversified its business since I last looked at it. There’s a Truth+ streaming channel, which offers “non-woke movies, live TV, Christian content, and more“, and it has got into crypto.
But a big red flag for me here is that the company doesn’t disclose standard platform industry metrics like daily active users. So it’s hard for investors to track engagement, adding significant uncertainty.
That said, Trump Media earned $15.3m from Bitcoin-linked option premiums and $13.4m in interest income in Q3. And this suggest the firm’s crypto assets are now more relevant than the social media platform.
Either way, this is a speculative share I’m not going anywhere near.
Palantir
The second stock — Palantir Technologies (NASDAQ:PLTR) — is a different beast altogether. It’s up nearly 1,000% since the start of 2024!
The software/data analytics giant has no growth problems, with Q3 revenue skyrocketing 63% to $1.18bn. Net income of $476m represented an incredible 40% margin.
Due to insane AI-related demand, Palantir is now generating more profit in a single quarter than it did in revenue just three years ago.
Looking ahead, strong growth is expected to continue, with the firm’s customer count jumping 45% in Q3. Blue-chip customers tend to spend more and more with Palantir as the years go by.
In the United States, our commercial business…is an absolute juggernaut. And we believe that it will become, on its own, one of the most significant business stories of the century in American economic life. Palantir CEO Alex Karp.
Stepping back then, it’s hard to be anything other than impressed with this business. My issue is that the stock’s price-to-sales multiple is currently 118. The forward price-to-earnings ratio is 182.
Unfortunately, I can’t risk investing at this price. In reality, it offers virtually no margin of safety if growth even slightly underwhelms.
So, while the company is great, the stock appears extremely overpriced to me.
Foolish takeaway
In terms of quality, these two shares are worlds — or even universes — apart. But they share one thing in common — they both look significantly overvalued.
Fortunately though, there are plenty of other attractively-priced opportunities in the stock market today.
