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Valuations Matter: These 3 Companies Have Sky-High Multiples, So Watch Out

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  Published in Stocks and Investing on Wednesday, September 24th 2025 at 18:01 GMT by Seeking Alpha
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Valuations Matter: These Three Companies Carry Sky‑High Multiples – Why You Should Watch Them

In a recent Seeking Alpha feature titled “Valuations Matter: These Three Companies Have Sky‑High Multiples – So Watch Out,” analyst Michael A. Phelps dives into the world of high‑growth equities that have attracted investors with their lofty price‑to‑earnings (P/E) and enterprise‑value/EBITDA (EV/EBITDA) ratios. Phelps argues that while explosive growth can justify premium valuations, the risk‑return trade‑off can become precarious when multiples drift too far beyond historical norms or peer benchmarks. He focuses on three companies that, according to his data, sit on the crest of a valuation wave: Palantir Technologies (PLTR), Coupang (CPNG), and Shopify (SHOP).

1. Palantir Technologies – The “Data‑Analytics Unicorn”

1.1. Quick Take

Palantir, the big‑data software giant, has recently posted a forward‑P/E of roughly 1,300x and an EV/EBITDA of around 200x. Even when stripped of its “unusual” one‑off revenues and focusing on core subscription fees, the company’s multiples remain far above the tech‑sector average.

1.2. Why the Numbers Are So High

• Hyper‑Growth Trajectory: Palantir’s revenue has been growing at over 70% CAGR year‑on‑year. The company recently secured a $1.2 billion contract with the U.S. Department of Defense, signalling an expanding government footprint that can lift the revenue base significantly.
• Expanding Customer Base: Beyond defense, Palantir’s Foundry platform is being adopted by a growing roster of Fortune‑500 clients in finance, healthcare, and manufacturing. Each new client brings a larger recurring revenue stream.
• Network Effects: The more data Palantir ingests, the more value it can generate. Its platform is designed to scale as the amount of data it processes grows, which can push margins higher once the infrastructure costs plateau.

1.3. Risks Phelps Highlights

• Profitability Lag: Palantir’s net income remains negative, driven largely by aggressive R&D and sales‑enablement spend. Even with higher revenue, margin expansion is not guaranteed.
• Competitive Threats: Traditional enterprise software vendors (Oracle, SAP) are moving aggressively into the data‑analytics space. A price war or a strategic partnership could erode Palantir’s market share.
• Regulatory Scrutiny: The company’s deep involvement in defense contracts exposes it to political and regulatory risk. A shift in defense spending or export controls could constrain growth.

2. Coupang – South Korea’s “Amazon”

2.1. Quick Take

Coupang, the e‑commerce titan from South Korea, is trading at a forward‑P/E of roughly 400x and an EV/EBITDA around 60x. The company’s valuation is underpinned by its massive logistics network, which has turned it into a “same‑day delivery” powerhouse.

2.2. Growth Story

• Dominant Market Share: Coupang captured over 70% of South Korea’s online‑shopping market, largely thanks to its “Rocket Delivery” service.
• International Expansion: Recent filings indicate a push into Japan and Southeast Asia, which could double the company’s TAM in the next two years.
• Diversified Revenue: Beyond retail, Coupang has been building its fintech and media ecosystem. A new streaming arm has already generated positive cash flow.

2.3. Risk Factors

• Capital Intensity: The logistics network demands continuous capital expenditure. The company has already posted an EBITDA margin of -4%, reflecting the heavy cost structure.
• Competitive Landscape: Global giants such as Amazon and Alibaba are eyeing the Korean market. A price‑cutting strategy by competitors could squeeze Coupang’s margins.
• Cultural and Regulatory Differences: Expanding into new geographies means navigating unfamiliar regulatory frameworks and local consumer behaviors.

3. Shopify – The “Retail SaaS Platform”

3.1. Quick Take

Shopify’s valuation sits at a forward‑P/E of about 120x and EV/EBITDA close to 30x. The company’s platform, which powers more than 1.7 million merchants worldwide, has become the de‑facto standard for e‑commerce infrastructure.

3.2. Expansion Dynamics

• Platform Ecosystem: Shopify offers merchants a one‑stop shop—website hosting, payment processing, marketing tools, and analytics. This vertical integration helps capture a high degree of customer stickiness.
• Merchant Growth: The company reported a 40% YoY growth in active merchants, with a majority of new sign‑ups coming from the U.S. and Canada.
• International Penetration: Shopify’s European operations have shown double‑digit growth, and it has begun offering localized checkout options in Asia Pacific markets.

3.3. Potential Headwinds

• Margin Pressure: While Shopify’s gross margin sits around 62%, its operating margin is only 6%. Rising costs associated with customer acquisition and cloud hosting could bite into profitability.
• Competition from Big Tech: Amazon’s “Seller Central” and Walmart’s “Marketplace” are formidable rivals. Any major shift in their strategies could reduce Shopify’s market share.
• Economic Sensitivity: A global recession could dampen small‑business spending and delay new merchant registrations, slowing growth momentum.

How to Interpret These Sky‑High Multiples

Phelps reminds readers that a high multiple does not automatically signify an overvalued security; it could also be a sign of strong future growth expectations. Still, he advises a balanced approach:

1. Relative Peer Benchmarking: Compare each company’s multiples against comparable peers. For example, Palantir’s P/E is an order of magnitude higher than other enterprise software firms, signaling premium expectations.
2. Cash‑Flow Perspective: Look beyond revenue to free cash flow. A company with a robust operating cash flow is better positioned to sustain high valuation multiples.
3. Margin Expansion Potential: If a company can lift its EBITDA margins, it can justify higher multiples. Watch for evidence of scale efficiencies.
4. Risk Disclosure: Read the company’s own risk section in the latest 10‑K or earnings call transcript. Regulatory, competitive, and operational risks can materialize faster than growth projections suggest.

Bottom Line for Investors

Valuations are a critical lens through which to view a company’s investment thesis. The Seeking Alpha piece underscores that while Palantir, Coupang, and Shopify offer compelling growth narratives, their sky‑high multiples reflect a concentration of upside risk. Investors should:

• Do Their Own Diligence: Scrutinize the underlying earnings quality and growth drivers.
• Diversify Exposure: Avoid over‑concentration in any single high‑multiple play.
• Monitor Sentiment Shifts: Market sentiment can swing quickly when a company’s valuation feels out of sync with fundamentals.

In the ever‑evolving tech landscape, high multiples can be a double‑edged sword—propelling wealth creation for early believers while exposing latecomers to volatility. The article serves as a timely reminder that valuation matters and that each of these companies’ lofty numbers warrants careful, ongoing evaluation.