I believe that an investment at current prices could still pay off in the long run, however, as PLTR could be in a position to grow its business for decades, but that is far from certain. Certain assumptions have been made for modeling purposes and are unlikely to be realized. Therefore, investors who can stomach the near-term volatility should stick with Palantir. I wrote this article myself, and it expresses my own opinions. PLTR stock already tripled since its initial public offering. To put this in focus another way, consider how strongly PLTR has actually performed since the direct listing in 2020. That dilution will also prevent Palantir's high valuations from cooling off. Public comparables has been identified and analysed, where Palantir is compared across (1) systems integrators, (2) high growth Software as a Service (SaaS) companies, and (3) data mining and visualization companies across different industry verticals. 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. If we assume PLTR can maintain a P/S of 30 then it roughly implies to me that PLTR will reach $120 billion in market capitalization. There's no dilution happening, they aren't issuing new shares. Due to how sensitive the multiples are, Ill estimate a range of multiples as: (1) 40x 2030% y-o-y growth (a 30% cut from its current multiple as there are no current peer comparables in this segment. So been balls deep in Palantir since it went public in September. Second, mobility is growing in the automotive sector. As mentioned above, other tech companies, including FB, GOOG, and Apple (AAPL) have done so, too, and had success with that. Palantir specializes in big data analytics. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. There is, however, also another possibility. And, it's also a powerful recruiting and retention tool. Invest better with The Motley Fool. The value score is 42/100. Disclaimer: This initiated report is only a primer version it does not conduct a deep dive in the software-infrastructure technology market segment, but to incorporate managements overall guidance and analyse the companys operational structure to determine the fair value of the company. We have war fighters who follow our nutrition. Certainly, that's a view in the rearview mirror. Research that delivers an independent perspective, consistent methodology and actionable insight, 2023 TV Show Cancellations- Effective Immediately. InvestorPlace - Stock Market News, Stock Advice & Trading Tips. The forecasted annual earnings growth over the next year is 67% (which The Motley Fool owns and recommends C3.ai, Inc. and Palantir Technologies Inc. Third, its growth in healthcare is rising. 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. (New pick just posted.). One bearish argument against Palantir continues to be the companys reliance on government contracts. We must continue to watch SBC and dilution like hawks. All rights reserved. Namely, that it's growing like crazy, with strong adjusted cash flows, and hefty margins. Subscribe right now because you get 14 days for FREE. Enter your email to receive our newsletter. The company works closely with the U.S. Army and the Department of Defense (DoD). 2023 InvestorPlace Media, LLC. And, if you've been following me for any time, you know that one of biggest concerns is PLTR's stock-based compensation, also known as SBC. After all, PLTR didn't move much at first, then it exploded in value, then it went higher, then it settled down into the $20 to $30 range. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. Palantir Technologies (PLTR) has been trading publicly for a little over a year and has gained about 100% since then. That's why it's often far better to look at it over a period of time. And, that's also in line with PLTR's long-term sales view, back from Q4 2020. The next target multiple will be 1020x, comprising of large systems integrators and enterprise AI companies such as IBM, Cognizant, etc), (2) 60x 3040% y-o-y growth (where Palantir is currently priced at), (3) 100x 50% y-o-y growth (evidenced by how DocuSign and Datadog are valued as they experience such high growth rates). Eng, Go to company page In total, Palantir grew revenue by 36% year-over-year to $392 million. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. Leo Sun owns C3.ai, Inc. and Palantir Technologies Inc. Among them is Palantir's pretty high valuation, at around 150x 2021's expected net profits. It also announced it would accept payment in. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. But its hard to find fault when the company is growing both sides of the business. 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. *Average returns of all recommendations since inception. I wrote this article myself, and it expresses my own opinions. This will help the company offer governments the option to identify compliance issues with banks. Palantir generates just over half of its revenue from government contracts. But over the long term, I still expect Palantir to leverage its battle-hardened reputation to secure more government clients and expand its enterprise business. 7 Top-Rated Energy Stocks to Fill Up Your Portfolio. There are, however, also some negatives that are oftentimes brought up when Palantir is discussed. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. MSFT is the only "cannibal" of this bunch. Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. 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. A sensitivity analysis is applied to Palantir to weigh out different possibilities on where the share priced will be headed towards, depending on the scenario and the type of valuation methodology employed. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. Secondly, its a non-cash expense, so Palantir doesnt technically have to outlay any cash to pay for these expenses, so its ability to generate cash flow from operations is not hindered and this would help the company to reinvest in itself. I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. Governance Documents Executive Management Board of Directors Committee Composition / Resources. I am bullish on PLTR stock. Upon renewal, the amount may increase. Palantir has been one of the worst-hit stocks since the growth meltdown began last year. At 150x forward earnings, and at around 30x net revenues, PLTR is far from a cheap stock. Not surprisingly, Karp has sold a lot of these options recently. Lastly, the total addressable market of the company is $120 billion, and it is expected that the global big data market could grow at aCAGR of 22.4%through 2030. 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. MULN Stock Alert: Does Mullen Have 3,000 Preorders For Its FIVE EV? Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. Learn More. However, this secretive software firm that Today, Palantir trades at $22, for a $42 billion market capitalization. (You are fully protected by Seeking Alpha's unconditional guarantee.). 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. Here I do see a stronger relationship between share count and price. Current and future investors will have to keep track of Palantirs future quarterly financial reports to determine the potential of the company. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. In the quarter, Palantir added 34 new customers and closed 54 deals worth $1 million or more. 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 Palantir revenue has been increasing over the years. I remain bullish. Web2,173,481,929 shares was the fully diluted share count as of DPO and this included outstanding options and RSUs that have not yet vested. Thankfully for them, government contracts last many years. Palantir is, I believe, not a low-risk pick, and one has to be willing to stomach the volatility and to hold shares for a long time to justify buying. Palantir Technologies ( PLTR) has been trading publicly for a little over a year and has gained about 100% since then. I'll have to review this more closely in a future article. Therefore, to grab on maximum opportunities, Palantir is aggressively maximizing the quality of its products along with building strong sales teams and entering intopartnershipswith large global giants like International Business Machines (IBM). 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. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. 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. 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. So been balls deep in Palantir since it went public in September. It should also benefit from the growing need for real-time data, and remain a top play on the expanding AI market. Thanks for pointing this out. I have no business relationship with any company whose stock is mentioned in this article. Disclosure: I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. A buyback program could help offset the dilutive impact of SBC, which naturally benefits shareholders, as EPS growth will improve, all else equal. 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). That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. 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. I appreciate your feedback, comments and questions. On the Stockrover stock grading site, Palantir stock has a fair quality and valuation score. 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?. And the companys overall revenue was up 36% YOY at $392 million. Without incorporating the effects of dilution, any fair value automatically becomes inaccurate aka useless- and we risk thinking that a $81 fair value per share for Palantir would be reasonable. In total, it received $610 million which accounts for 56% of its total revenue. I am not receiving compensation for it (other than from Seeking Alpha). A few of the major drawbacks of Palantir stock are its increasing dilution in the number of shares and the high valuation. Palantir Technologies (PLTR) has an average rating of hold and price targets ranging from $4.50 to $15, according to analysts polled by Capital IQ. Not really. 1125 N. Charles St, Baltimore, MD 21201. As the industry landscape is largely unprofitable, forward EV/EBITDA multiples range in the high numbers from 60x to 200x companies are expected to have >50% y-o-y revenue growth with decreasing operating structures. This attractive combination of both fronts also has the possibility to turn Palantir into one of the largest and most important companies in the future to come, thereby enabling the investors to earn multi-bagger gains. 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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. Furthermore, PLTR has a narrative to maintain. Gross margins are stronger than the S&P 500 average. I wrote this article myself, and it expresses my own opinions. 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. 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. Fair Value is the appropriate price for the shares of a company, based on its earnings and growth rate also interpreted as when P/E Ratio = Growth Rate. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Growth meltdown began last year and retention tool page in total, it 's growing like crazy with... Been trading publicly for a $ 42 billion market capitalization also a powerful recruiting and tool. 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