Palantir Cheaper Than Alphabet on Price-to-Sales

Palantir Technologies Inc. (PLTR) on the New York Stock Exchange trades at a lower price-to-sales ratio than Alphabet Inc. (GOOGL, GOOG) on Nasdaq. The gap indicates investors are paying less per dollar of revenue for Palantir than for Alphabet.

Price-to-sales, or P/S, divides a company's market capitalization by its annual revenue. The metric measures how much investors pay for each dollar of sales and does not capture profit margins, debt levels or cash flow.

Alphabet generates larger revenue from advertising, cloud services, hardware and online video, and has a sustained record of operating income. Palantir earns revenue from government contracts and commercial software and services; its revenue base is smaller and operating results have varied as the company invests in growth.

Palantir's lower P/S reflects a smaller market value relative to its revenue. Alphabet's higher P/S reflects a larger market value relative to its revenue. Differences in scale, profit margins, revenue growth and customer concentration are factors that contribute to the valuation gap.

Analysts and investors also use price-to-earnings, enterprise value to revenue, free cash flow and margin trends, along with market capitalization and balance-sheet measures, to compare companies. Contract length and customer concentration affect how Palantir's revenue is evaluated; Alphabet's revenue is more diversified across products and regions.

Palantir was founded to provide data analytics and software to government and commercial clients. Alphabet is the parent company of Google and operates businesses across digital advertising, cloud computing, hardware and online video. Market participants use a range of financial ratios and company-specific factors when assessing relative value.