Before the Bell: A Price-to-Earnings ratio of 1,100

The only certainty is that nothing is certain. Yesterday, markets in both Europe and the U.S. opened deep in the red but later rebounded. The reason? The trade tariffs that President Trump planned to impose on Mexico and Canada have been put on hold. Mexico has agreed to deploy 10,000 additional soldiers to the U.S. border in exchange for at least a one-month delay on the tariffs. Shares of automakers like Stellantis (-4.5%) and General Motors (-3.2%), which manufacture heavily in Mexico, dropped yesterday but could see a rebound today. Canada also secured a delay after concessions from Prime Minister Trudeau.

As of this morning, however, an additional 10% tariff on Chinese imports has officially taken effect. This could heavily impact U.S. companies with production in China, such as Apple (-3.2%). The Chinese e-commerce giant Temu, owned by PDD Holdings (-6%), now risks losing its duty-free shipping privilege for packages valued at less than 800 dollars. In response, China has announced countermeasures, imposing tariffs on U.S. coal, LNG, and crude oil. Despite the escalating trade war, Asian markets are trading higher today. In Tokyo, the Topix index is up 0.7%, while Hong Kong is posting a 2.3% gain.

In Belgium, investors are eyeing the market’s response to Fagron’s latest acquisition. The pharmaceutical company has acquired Spanish peer Guinama for 22 million euros. Meanwhile, Smartphoto increased its 2024 revenue to 80.5 million euros, a 4% gain from 2023, though EBITDA declined by 13%. BNP Paribas saw net profit rise to 2.32 billion euros, allowing for a 4% dividend increase—good news for the new Belgian government, as Belgium remains the bank’s second-largest shareholder. Later today, Pfizer, PepsiCo, Spotify, and Alphabet will report earnings.

Sky-High Valuations

When is a stock overvalued? Investors typically look at revenue, profit growth, and margins to determine a stock’s fair value. In theory, a company’s future profits drive its share price. But some investors seem extremely confident in the growth prospects of Palantir, a software company primarily serving the defense sector. Pre-market trading suggests Palantir’s stock will jump 20% at the market open after reporting a 29% revenue increase, reaching 2.9 billion dollars. The problem? Before the earnings release, Palantir was already valued at 191 billion dollars—66 times its revenue. After deducting operating costs and employee salaries, net profit for 2024 was only 210 million dollars, meaning Palantir was trading at 910 times its 2024 net earnings. If the stock rises 20% today, its price-to-earnings ratio will skyrocket to approximately 1,100. While growth expectations for Palantir are high, we believe the 400% rally over the past 12 months has pushed the stock too far ahead of its fundamentals.

Shedding Debt

Investors avoided Xior, the student housing rental company, for much of last year due to concerns about its high debt levels. Combined with share sales by major shareholder Basecamp, this created downward pressure on the stock price. However, this period may be coming to an end. Quarterly results released this morning show that Xior’s debt ratio has fallen below 50%, thanks to capital increases in recent months. Insider selling has also declined, while new investors such as Fernand Huts have taken positions in the company. For 2025, Xior expects stable earnings in line with 2024’s figure of 2.21 euros per share. This afternoon, Spaarvarkens.be will publish an in-depth analysis of Xior for its members.

Did You Know…

this week, 1 in 5 companies in the S&P 500 will report earnings? This makes it the busiest week of the earnings season.

This article was translated from Dutch and was originally published on Spaarvarkens.be.