Palantir specializes in big data analytics. 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. 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. Google. This represents a further downside from both current share price and the initial fair value per share of the company and thus, Palantir is possibly overvalued at its current share price. Stocks tumble, Apple slides as China COVID protests spook investors to start week Is this happening to you frequently? Palantir Technologies Inc. stock rises Monday, outperforms market Jan. 9, 2023 at 5:18 p.m. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Since then, it has fallen to trade at $18-$19 levels. WACC (Fig 4) is estimated at 8.5% for Palantir. The company is an unquestioned leader in the field of big data analytics. 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! Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. Further, CEO Alex Karp posited a 40% revenue growth for FY21 and a sustained 30% y-o-y growth up to FY25. 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. Due to reader interest in this question, I'll try to evaluate the possibility of a Palantir Technologies Inc (NYSE:PLTR) stock buyback, both in the near term and in the longer term. He shares his stock picks so readers get original insight that helps improve investment returns. 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. This poses a question; Is the market mispricing Palantirs growth story or has the market priced in additional setbacks of Palantir such as huge dilution in Palantirs stock-based compensation, a low probability to suppress its margins as the company seeks to expand and increase its top line revenue growth, and most importantly, the inability to consistently hit its 30% y-o-y revenue growth target? And when you join, I'll instantly share my actively managed growth stock portfolio. One bearish argument against Palantir continues to be the companys reliance on government contracts. 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. MULN Stock Alert: Why Are Investors Suing Mullen Automotive? 18 of those deals were valued at $10 million or more. Is this happening to you frequently? 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. The Motley Fool owns and recommends C3.ai, Inc. and Palantir Technologies Inc. Chief Executive Officer Alex Karp expects the company will have annual revenue growth of 30% or more from 2021 through 2025. 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. Just as it looked as though Palantir Technologies (NYSE:PLTR) would rally again, its quarterly earnings rained on its parade. This sounded like a huge red flag, but gave benefit of doubt since they've been private for so long. Cost basis and return based on previous market day close. Share-based compensation expenses have declined in recent quarters, which is in line with what one would expect from the above chart. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Palantir is a technology investment that requires a holding period of at least three years. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. 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. Since trades have not actually been executed, results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have had on the decision-making process. 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. First, the company is growing its commercial revenue. Due to the nascent industry landscape and a primer to further deeper research, the multiples used will not be the derived mean/median values but rather on what was mentioned above (60x). Palantir SBC is costly and is here to stay, therefore must be incorporated into a financial valuation. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. I am not receiving compensation for it (other than from Seeking Alpha). See for yourself. 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. I do see some risk in P/S compression but in looking at some reasonable comparisons, PLTR's P/S at around 30 isn't completely outlandish for a quality, high growth company. No representations and warranties are made as to the reasonableness of the assumptions. Palantir is a high-growth company that operates worldwide in both commercial and government segments. Third, its growth in healthcare is rising. I am the founder of Growth Stock Renegade, a premium service on Seeking Alpha's Market Place. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. This is on the low side because of the weak return on invested capital. I'm still bullish on Palantir's future, and I believe it can easily achieve its goal of generating at least 30% annual revenue growth from 2021 to 2025. Let's use the same basic approach to look at three more companies. Even better, when you join you get instant access to my model portfolio targeting 100% returns in less than 36 months. Today, Palantir trades at $22, for a $42 billion market capitalization. Therefore, long-term investors who have a lot of patience might want to consider this stock for their portfolios. In total, Palantir grew revenue by 36% year-over-year to $392 million. eBay, Go to company page How does all this look in relation to simple share price gains over the same period? The potential With good data and the right technology, people and institutions today can still solve hard problems and change the world for the better. , Palantir recently made a large purchase of gold bars. values the company at around $40 billion. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. Nasdaq Not really. So while there will likely continue to be some selling in the next few years, investors may have to find something else to object to. Financials. A buyback program could solve the SBC issue, but do not expect one in the very near term, despite the fact that PLTR's balance sheet is clean. Here's some color: The company appears to favour SBC over salary for all its employees, and thanks to the direct listing in 2020, the stock-based compensation expense increased five-fold from $241m in 2019 to $1.2bn in 2020. I work together with Darren McCammon on his Marketplace Service Cash Flow Club. That dilution will likely continue as long as Palantir remains unprofitable. 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. 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. In the Q3 2021 earnings conference call on Nov.9, he said, legacy compliance solutions are often 2 or more decades behind. These options were set to expire on Dec. 3, 2021. There is, however, also another possibility. Of course, revenue growth of 30% for the next several years is impressive. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. It is common trend with all companies with negative EPS as they can not issue bonds which need to be repaid. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. Louis Navellier and the InvestorPlace Research Staff. I am an investor, entrepreneur, father, husband, coach and teacher. In the chart, we see that the rate was the steepest in February, before declining a little in March and declining further in April. 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. 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. 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. Does it make it a bad investment? Due to the fact that there is no need to pay down debt, and since capital expenditures are pretty low, while the company also does not need to add growth through M&A (as its organic growth is strong already), it would not seem like a huge surprise if PLTR eventually starts buying back its own shares. It appears to me that PLTR's growth will overcome the SBC problem over the coming years. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. But the good news is that Karp was by far the biggest holder of options. Despite the long tail in revenue in the next few years increasing earnings, the dilution will limit the stocks upside. Now that shares are down slightly, Palantir is a stock to consider again. Hence, projecting such valuations does not seem realistic and the base cases outcome is recommended. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. This is the case for any IPO. The primary goal of the Cash Flow Kingdom Income Portfolio is to produce an overall yield in the 7% - 10% range. Third, there's a good reason for SBC and therefore share dilution. However, it seems the company has now been dedicating itself to finally improving its bottom-line performance. 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. Here I do see a stronger relationship between share count and price. 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. I have no business relationship with any company whose stock is mentioned in this article. Breaking News Nov 28, 2022. These multiples will be carried forward to our sensitivity analysis. Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. In fact, based on the companys FCF projections. However, I need to point out a few things. For the bull case, we will assume a 50% y-o-y growth, ceteris paribus resulting in a US$8B/14B revenue in FY25/27 respectively. First, as I've roughly demonstrated above, share count can go up or down, yet investors can still do quite well. The biggest holder of options total, Palantir trades at $ 18- $ levels! The good news is that Karp was by far the biggest holder of options an overall yield in future. Challenges, and it could remain out of favor as inflation-related fears drive investors from... Has over 20 years of Investing experience in the next several years is impressive founder. 'Ve been private for so long that Karp was by far the biggest holder options! Over five years investors Suing Mullen Automotive would be concerning previous market day close: MSFT ) 14! 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