Palantir Technologies (PLTR 0.18%) made history when it peaked near $125 per share on Feb. 18, achieving an unprecedented valuation of 61 times forward sales. The stock at that point had skyrocketed 625% since January 2024, making it the best-performing member of the S&P 500 (^GSPC 1.59%) during that period by a wide margin.

However, disappointing economic data and concerns about tariffs set to take effect in early March have since rattled Wall Street. Palantir has tumbled 32% from its record high in the past week amid a drawdown in the broader market, and history says the stock has further to fall.

History says Palantir stock still has a long way to fall

Palantir made history on Feb. 18 when its forward price-to-sales (P/S) multiple reached 61. That valuation ratio is calculated by dividing the current market capitalization by forecast sales over the next four quarters. Put differently, the forward P/S ratio quantifies the current share price as a function of anticipated future revenue. And 61 times forward sales is absurdly expensive.

Not surprisingly, certain Wall Street analysts have been sounding the alarm for months. For instance, Gil Luria at D.A. Davidson in November said Palantir traded at an "unprecedented premium" to its software peers. And Brent Thill at Jefferies in February told CNBC no other stock has a valuation remotely close to Palantir. "We've never seen a multiple like this," he said.

My own research led to a similar conclusion. I considered the forward P/S ratio of more than 50 software stocks in the last decade. To my knowledge, Palantir is one of two companies to attain a valuation above 60 times forward sales, and one of only four companies to top 50 times forward sales during that period:

• SoundHound AI traded at 63 times forward sales in May 2022. It declined 96% by January 2023.
• Snowflake traded at 60 times forward sales in November 2021. It declined 73% by September 2024.
• Serve Robotics traded at 59 times forward sales in December 2024. It declined 62% by February 2025.

As mentioned, every software stock that topped 50 times forward sales during the past decade eventually fell at least 62% after attaining its peak valuation. And the average peak-to-trough decline was 77%. Also noteworthy is that all three stocks listed are still down at least 55% from their record highs.

As mentioned, Palantir has declined 32% from its record high in the last seven trading days, but the statistics suggest the stock still has a long way to fall. For instance, if Palantir suffers a peak-to-trough decline of 77% (the average among the three stocks listed above), that would drag its price below $29 per share.

Image source: Getty Images.

Palantir stock could still be a rewarding long-term investment

Investors should remember that past performance is never a guarantee of future results. More importantly, even if Palantir suffers a massive crash in the near future, it could still be a rewarding long-term investment from its current price. Indeed, Wedbush analyst Dan Ives says Palantir could be a trillion-dollar company in the future.

Here's how that could happen: If Palantir's revenue increases at 30% annually over the next decade, it would report about $40 billion in sales in 2035. Meanwhile, if the stock traded at a pricey (but not absurdly pricey) valuation of 25 times sales at the end of that period, Palantir would be worth $1 trillion. That implies 400% upside from its current market value of $200 billion.

Admittedly, I made several aggressive assumptions in my hypothetical example. As a result, the most prudent course of action would be to avoid Palantir stock until it trades at a much cheaper valuation. However, current shareholders with a long time horizon could still see solid returns over the next decade if the company continues to execute.