Its a perfectly legal practice, its just not something investors like to see. 18 of those deals were valued at $10 million or more. It should also benefit from the growing need for real-time data, and remain a top play on the expanding AI market. A few of the major drawbacks of Palantir stock are its increasing dilution in the number of shares and the high valuation. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. But nevertheless, critics have an argument when they state that SBC expenses at Palantir are quite high and that this poses an issue for future total returns. Just as it looked as though Palantir Technologies (NYSE:PLTR) would rally again, its quarterly earnings rained on its parade. I do much more than just articles at Cash Flow Kingdom: Members get access to model portfolios, regular updates, a chat room, and more. Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. Its stock remains expensive relative to its sales, History suggests that SBC isn't a stock price killer. Enter your email to receive our newsletter. values the company at around $40 billion. Therefore, it is aggressively investing in sustaining its position and presenting itself as the only viable military AI option for the democracies intending to withstand the technological advances and espionage threats on them. Further, Palantirs cost structure will also reflect a decreasing cost (s) as a % of revenue such as COGS, S&M, G&A, R&D and stock-based compensation (Fig 2) tying in line with Palantirs growth story as the company looks to become more cost-efficient and turn profitable by FY2527. Benzinga reports: Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, MSFT. *Average returns of all recommendations since inception. Interestingly, share count isn't a concept that is instantly easy to see. The TipRanks Smart Score performance is based on backtested results. Subscribe right now because you get 14 days for FREE. Palantirs government business revenue grew by 77%. Price as of January 18, 2023, 1:25 p.m. Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >, Tired of arriving late to the Big Returns Party?. Expect the company to win more customers in the coming year. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. quotes delayed at least 15 minutes, all others at least 20 minutes. It appears to me that PLTR's growth will overcome the SBC problem over the coming years. Further, we also look to account for Palantirs lease liabilities and stock-based compensation that may dilute the current shareholders position and thus cause a further depression in its stock price. PLTR stock already tripled since its initial public offering. Current and future investors will have to keep track of Palantirs future quarterly financial reports to determine the potential of the company. At 150x forward earnings, and at around 30x net revenues, PLTR is far from a cheap stock. And I saw that as of end of 2020, they had 1.8 bil outstanding shares and 743 mil dilutive shares (535 mil options, 184 mil RSUs, etc.) Financials. Palantir has a strong moat that gives customers an edge. Feast your eyes on their share counts over the last 10 years or so. I am not receiving compensation for it (other than from Seeking Alpha). This suggests the stock has no near-term upside. Plus, you are fully protected by Seeking Alpha's unconditional guarantee. All of this is to make an even more important point today. We must continue to watch SBC and dilution like hawks. Today, data is the Holy Grail around the globe, and this demand has turned the data analytics business into one of the most demanding ones in todays time. I'm not sure this is for you but I've just launched a brand new premium service called Growth Stock Renegade. A subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and potential investment risks. In fact, based on the companys FCF projections, InvestorPlace contributor Mark Hake has a price target of $38.81 for Palantir. Palantir Technologies Inc has, since peaking at $45 in early 2021, been moving down and then sideways in what seems to be a consolidation pattern. The DCF valuation employs the Free Cash Flow to the Firm (FCFF) methodology to arrive at the intrinsic value of the company. Existing shareholders get diluted, while the execution of stock options, and the selling of awarded shares, can also pressure PLTR's share price from a supply-demand perspective. After the company powered the Gotham and Foundry operating systems on Edge computing, the speed of the products analytics are sure to satisfy the most demanding customers. Again, I'm almost certain you've heard of PayPal (PYPL), Salesforce (CRM) and Adobe (ADBE). The Upside Potential for SOFI Stock Is Limited. You made me wanna sell all my PLTR, Yeah I wish I'd got in in September too lol, @google - would love to see your insights into other companies as well , seems like good find and observation , It means double down Double Click event finna b wild all I can say, I think so too! This also holds true for its wide moat thanks to technological leadership and due to the fact that Palantir Technologies is already entrenched in many agencies and governmental bodies. I am not receiving compensation for it (other than from Seeking Alpha). Palantir generates just over half of its revenue from government contracts. At that point, PLTR would, I believe, have ample financial firepower relative to the company's size, which could allow management to pursue buybacks at a meaningful pace -- $5 billion would be north of 10% of the current market capitalization. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. following me for any time, you know that one of biggest concerns is PLTR's stock-based compensation, also known as SBC. I write about venture capital, equity research, and data analysis. Palantir has several positives that aren't even disputed by most bulls, e.g. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. Both PYPL and ADBE were "cannibals" and appreciated over 600%. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? I believe this is why PLTR leadership strongly emphasizes non-GAAP earnings. Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. I wrote this article myself, and it expresses my own opinions. Palantir SBC is costly and is here to stay, therefore must be incorporated into a financial valuation. Further, CEO Alex Karp posited a 40% revenue growth for FY21 and a sustained 30% y-o-y growth up to FY25. for Palantir. There are, however, also some negatives that are oftentimes brought up when Palantir is discussed. 1125 N. Charles St, Baltimore, MD 21201. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Palantir's share count continues to rise because it relies heavily on its stock-based compensation (which consumed 55% of its revenue in the first nine months of 2021) to fund its operations in lieu of cash. The big picture is that share count is a hot button issue. Stocks tumble, Apple slides as China COVID protests spook investors to start week I have no business relationship with any company whose stock is mentioned in this article. , Palantir recently made a large purchase of gold bars. And the companys overall revenue was up 36% YOY at $392 million. Strong deal value, growing 50% to $3.6 billion, signals strong business ahead. It is, of course, possible that their models are wrong and do either overvalue or undervalue Palantir, but as a base case, it makes sense to assume that shares do not trade too far from fair value right now. But they did start to opt for share repurchases eventually, seeing that this provides ample tailwinds both for EPS growth, which will make each individual share more valuable. Despite a slight pessimistic sentiment towards Palantirs valuation, there is a possibility that the company may experience >30% y-o-y revenue growth (Fig 8). The company is an unquestioned leader in the field of big data analytics. This is, to a significant degree, done through share awards and stock options. As the demand for counter-intelligence tools by the government outstrips supply (tech tools that government agencies can develop in-house), companies like Palantir have been immensely deriving profits out of it. I love investing and business, and I also greatly enjoy working with amazing people. Today, Palantir trades at $22, for a $42 billion market capitalization. reduce the number of new stock options that are awarded to execs and employees. With the dilution effect accounted for (representing over US$3B in dilution across 246M shares), Palantirs true fair value per share will be priced at US$20.75 via EBITDA multiple method and US$20.18 via terminal growth method. Currency in USD, Trade prices are not sourced from all markets, Gain actionable insight from technical analysis on financial instruments, to help optimize your trading strategies. The truth probably lies somewhere in between. Palantir specializes in big data analytics. In the first nine months of 2021, its revenue rose 44% year over year to $1.11 billion, while its net loss narrowed from $1.02 billion to $364 million. Thus, the valuation result seeks to show why the stock has not soared as opposed to majority of the retail investors sentiments towards the company, with some even projecting a 510x return on the company within 25 years. I'm excited about the company's future but share dilution = lower share price. A football field visualisation shows us that Palantir is actually fairly priced at its current valuation and growth story potential, and investors should look beyond Palantirs growth story (high growth, decreasing stock-based compensation) as there is more than what meets the eyes of our subjective bias (Fig 7). If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. Nevertheless, in 12 months, it's beaten some of the world's best companies. But earlier this year, a leaked government document revealed that Immigration and Customs Enforcement (ICE) wanted to replace FALCON, the agency's customized version of Gotham, with a new in-house platform called RAVEn. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Plus, there is a 14-day FREE TRIAL. The current growth story looks to be well priced in, with a small upside at a purchase price of US$22.83 as of 15th Nov 21. Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, Insider sales are hurting shareholders. Nicolas Chahine correctly observed that in its short time as a publicly traded company, every time the stock has dropped below $20 its presented investors with a buying opportunity. News Events. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. Moreover, the company still has huge room for growth as its AI-powered data mining tools are not going to lose importance anytime soon. As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. This is all very rough, of course. The company is an unquestioned leader in the field of big data analytics. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. A new tech publication by Start it up ( The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. Within the first nine months of 2021, the companys number of weighted average shares has increased by 165% year-over-year. I wrote this article myself, and it expresses my own opinions. Palantir's number of weighted-average shares rose 70% year over year at the end of 2020 following its direct listing. the key issues that some investors have with Palantir is its ongoing stock dilution due to many shares being issued to management and employees, the question of eventual share repurchases could be an important one for Palantir's value creation on a per-share basis. Buyer Beware! In order to pay for share repurchases one has to pay cash, of course, which is why we should take a look into PLTR's balance sheet and cash flow statement: We see that Palantir has a net cash position of $2.1 billion, not accounting for restricted cash. The company works closely with the U.S. Army and the Department of Defense (DoD). In total, Palantir grew revenue by 36% year-over-year to $392 million. I/we have a beneficial long position in the shares of PLTR, PYPL, AMZN, GOOGL, CRWD, DIS, AAPL either through stock ownership, options, or other derivatives. contributing author for and numerous other financial sites. The stock has a 52-week high of $45 and a 52-week low of $14.40. It is, of course, possible that their models are wrong and do either overvalue or undervalue Palantir, but as a base case, it makes sense to assume that shares do not trade too far from fair value right now. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. I think it's useful to inspect the narratives. No cash balance or cash flow is included in the calculation. Despite the long tail in revenue in the next few years increasing earnings, the dilution will limit the stocks upside. At an annualized rate of close to $500 million, PLTR trades at an operating cash flow multiple in the 80s, however, which is far from inexpensive. Intuitively, we don't like it, but it's hard to see at a glance. eBay, Go to company page (3)A quick transition into selling modular solution so that they are able to stack SaaS pricing and onboard more customers that arent willing to fork out a huge initial amount for the companys solutions. Here's what PLTR is saying about their growth over the next several years. Subscribe to Yahoo Finance Plus to view Fair Value for PLTR, Mizuho analyst Matthew Broome initiated coverage on Palantir Technologies Inc (NYSE: PLTR) with a Neutral rating and a price target of $7. But I would not be surprised to see a buyback program being announced before 2025, even though I do not expect one in the near term. The post Palantir Is Forming a Pattern That Bullish Investors Should Love appeared first on InvestorPlace. No representations and warranties are made as to the reasonableness of the assumptions. Eng, Go to company page In the chart, we see that the rate was the steepest in February, before declining a little in March and declining further in April. He shares his stock picks so readers get original insight that helps improve investment returns. This is on the low side because of the weak return on invested capital. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Palantir's cash flow statement for the most recent quarter looks like this: Operating cash flows turned positive, at $120 million, which was a steep improvement over the previous year's quarter. First, the company is growing its commercial revenue. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. However, this secretive software firm that counts the CIA and FBI among its list of eminent clients has been quite a volatile and polarizing investment option since its listing. Go to company page No investor likes to see value evaporate, or fall into the hands of other people. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. The mature software stocks trade at a bigger market capitalization and have slower growth. Raytheon And when you join, I'll instantly share my actively managed growth stock portfolio. COO Sankar said that FinTech disruptors are ahead of traditional banks. It also announced it would accept payment in Bitcoin (CCC:BTC-USD), although according to a company spokeswoman, Palantir has not received any payments in the cryptocurrency. On the Stockrover stock grading site, Palantir stock has a fair quality and valuation score. When employees start to exercise these rights, (1) future dilution and (2) decreased free cash flow will occur, slashing the fair value per share to a lower price. I work together with Darren McCammon on his Marketplace Service Cash Flow Club. WebPalantir Technologies Inc. (PLTR) NYSE - NYSE Delayed Price. Still, that valuation comparison is not fair. Insider sales are hurting shareholders. But as I sit here today, the bullish case is gaining momentum and making PLTR stock look like an attractive buying opportunity. Palantir's stock is also down by 84% from its all-time I have no business relationship with any company whose stock is mentioned in this article. I have no business relationship with any company whose stock is mentioned in this article. Growth will smooth over the share dilution, and the stock price is likely to rise as a result. This is almost perfectly in line with the consensus price target of $21.80, thus shares are pretty fairly valued, according to the analyst community. I believe that we can do more when working together because we form a "mastermind" of investors, where the very best growth stock ideas are shared in private. PLTR stock lost 12% on the week, breaking down below the critical 20-, 50-, and 200-day moving average at around $25. From that standpoint, Palantirs future prospects make the dilution seem less intimidating. ET. Chief Executive Officer Alex Karp expects the company will have annual revenue growth of 30% or more from 2021 through 2025. On the other, bears are not wrong to criticize Palantir's cash-burning problem and excessive stock-based compensation, which keeps diluting shareholders to oblivion. There is, however, also another possibility. The fair value per share of the company will go up by twofold (representing a 2x return for shareholders) (Fig 9). That balance between sellers and buyers isn't too jarring, but Palantir's stock has also lost about a third of its value over the past three months, and is trading near its 52-week low. And as Hake notes, even if investors have to wait two years for the stock to hit that target, they would still get an average annual return of 29.54%. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Go to company page EV/EBITDA multiple method is derived by taking public comparables across (1) systems integrators, (2) high growth Software as a Service (SaaS) companies, and (3) data mining and visualization companies across different industry verticals (Fig 5). Palantir, which builds data analysis software for government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares. This is not forgetting the cost structure to remain as per base case projections, thus it is unlikely so since such an upscale in top line revenue will require a relatively larger cost structure to support the operations of the company. The Motley Fool has a disclosure policy. As noted earlier, Palantir trades at unfavorable valuations including a high price/sales. Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. It's still a major thorn in my side. However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. I know usual share dilution doesn't affect the company's fundamentals/story, but this seems way too extreme for shareholders to ignore. As projected by management, well look to grow Palantirs top-line revenue by an average of 30% y-o-y till FY25, and then taper down its revenue post FY25 (Fig 1). Its CEO, for example, received a massive $1.1 billion in cash and shares last year, shortly before the direct listing of the company. I hope to see you inside Growth Stock Renegade. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. It has a powerful A.I. Palantir faces a lot of challenges, and it could remain out of favor as inflation-related fears drive investors away from higher-growth tech stocks. Now, let's ignore share count just for a moment. Certainly, that's a view in the rearview mirror. But its hard to find fault when the company is growing both sides of the business. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. Theres likely a few reasons for Palantir to favour SBC over salary. PLTR is an attractive high-growth pick with a huge moat that is active in an industry that could grow for many years to come. On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. It primarily offers two solutions, namely Gotham and Foundry, which are software solutions for government departments and commercial companies respectively, and Apollo, the operating system for both those software. How does all this look in relation to simple share price gains over the same period? (Cognitive Computing) Second, it's bad but not super bad for PLTR. Backtested performance is not an indicator of future actual results. However, I need to point out a few things. SHARE THIS POST What did investors not like about Palantirs third-quarter results? For example, Palantir is helping the National Health Service (NHS) analyze information for millions of patients. In turn, banks will respond by strengthening their compliance programs. Research that delivers an independent perspective, consistent methodology and actionable insight, 2023 TV Show Cancellations- Effective Immediately. Since then, it has fallen to trade at $18-$19 levels. Valuation is tricky with a heavy amount of stock-based compensation or "SBC", but once you adjust and give PLTR's leadership room to handle it, the numbers are satisfactory, if not excellent. Bears say its close association with the United States government, along with an executive compensation structure that has caused share dilution, make PLTR stock overvalued. For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate., Invest Like a Pro with Unique Data & Simplifed Tools, Mohamed El-Erian Says the Stock Market Rally Could Be Short-Lived; Here Are 2 Strong Buy Dividend Stocks for Stable Cash Return, Boost Your Passive Income; 3 Stocks with 50+ Years of Dividend Growth. One out of eight analysts have given Palantir a Buy rating, three have Hold ratings, and the remaining four have suggested a Sell. News / Events / Financials. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. has been a polarizing stock. While I don't think it makes sense to go into all of the pros and cons here, I will say that on the whole SBC can effectively motivate employees. To make the world smarter, happier, and richer. 7 Top-Rated Energy Stocks to Fill Up Your Portfolio. Does it make it a bad investment? Following which, we can identify that Palantir will be growing at a 32.9% CAGR from US$1.5B in FY21 to US$8.4B in FY27 (hitting the target of US$5B at FY25 too). All rights reserved. Thanks for pointing this out. Financial Market Data powered by FinancialContent Services, Inc. All rights reserved. 1125 N. Charles St, Baltimore, MD 21201. Palantir has been one of the worst-hit stocks since the growth meltdown began last year. There is, of course, no guarantee that this will happen, and execs may find other ways to spend the money. Nasdaq Nevertheless, 287% is still quite robust. The amount of drag is dictated by a combination of dilution and growth. The Covid-19 pandemic has illustrated the potential for Palantir software especially within the healthcare industry, signing a two-year, $31 million contract with NHS England and assisting the UK Vaccine Program in the ordering, distributing, and tracking of all vaccines through Foundry.
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