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. Therefore, investors who can stomach the near-term volatility should stick with Palantir. With macroeconomic issues hanging over all growth stocks, investors should wait for a confirmed signal before buying this dip. Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. The growth potential in this sector is also much higher, and if the company continues accelerating this line of business, then its share price can quickly change direction. Is this happening to you frequently? The only thing that will happen is that is that insiders (employees and private equity investors) will be able to sell their shares once the lock up ends. WACC (Fig 4) is estimated at 8.5% for Palantir. Motley Fool Palantir Is Starting 2023 With A Bang The stock has a 52-week high of $45 and a 52-week low of $14.40. has been a polarizing stock. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. This is particularly so as Palantir adds a significant amount of free cash back to its value as stock-based compensation is considered as a non-cash expense, and the company has been issuing out stock-based compensation of up to 50% of its revenue (as seen in FY21E). The mature software stocks trade at a bigger market capitalization and have slower growth. Just as it looked as though Palantir Technologies (NYSE:PLTR) would rally again, its quarterly earnings rained on its parade. Learn More. In the Q3 2021 earnings conference call on Nov.9, he said, legacy compliance solutions are often 2 or more decades behind. Subscribe right now because you get 14 days for FREE. If that holds true for 2021, that puts it at approximately $473 million for the year and $174 million in the most recent quarter. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. COO Sankar said, We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us deliver on the necessary transformation in healthcare delivery from operational excellence to complex clinical care.. Down 65% in This Bear Market, Can Palantir Recover in 2023? I am bullish on PLTR stock. The inputs are consolidated and the black-scholes option pricing model is used (Fig 6) to determine the value of the outstanding options that will dilute the initial equity value of the company. 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. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. Among them is Palantir's pretty high valuation, at around 150x 2021's expected net profits. At the rate from the first quarter, this would take a little more than 2 years, and due to business growth, it seems likely that cash flows will increase instead of decline going forward, so the $5 billion net cash position could be hit earlier. Insider sales are hurting shareholders. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. I wrote this article myself, and it expresses my own opinions. Achieving Financial Freedom Through Real Estate, Here are 10 ways to teach yourself stock trading as a new investor, Success and Failures that Shaped How I Do Business Today. On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. I have no business relationship with any company whose stock is mentioned in this article. For now, investors should assume the stock is stuck in a $22 $27 trading range because earnings per share are not expanding. Palantir Might Be Worth the Buy for Patient Investors. 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%. Commercial revenue accounted for 44% of the total in Q3. 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. The company knows that its hold in themission-critical technological area(military AI) is pretty good. The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. We believe there are no alternatives that can compete on cost, speed, and performance.. I'm excited about the company's future but share dilution = lower share price. I have no business relationship with any company whose stock is mentioned in this article. Today, Palantir trades at $22, for a $42 billion market capitalization. Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. Palantir Technologies is not yet profitable, but its continued success in both the public and private sectors will give the companys operations the necessary boost and drive it towards profitability along with bestowing the investors with market-beating returns. Not surprisingly, Karp has sold a lot of these options recently. The information is not intended to be used as the basis of any investment decision by a person or entity. For example, Palantir is helping the National Health Service (NHS) analyze information for millions of patients. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. Certainly, that's a view in the rearview mirror. Since then, it has fallen to trade at $18-$19 levels. One of, if not THE most heavily compensated CEO of any US company in 2021. Backtested performance is developed with the benefit of hindsight and has inherent limitations. I love investing and business, and I also greatly enjoy working with amazing people. 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. I have no business relationship with any company whose stock is mentioned in this article. Foundry has seen an incredible increase in commercial adoption this year, with the number of private sector customers rising by about 135% as of September 30. Palantir can implement solutions quickly. 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. The company works closely with the U.S. Army and the Department of Defense (DoD). The portfolio's price can fluctuate, but the income stream remains consistent. Lets take a look at their Government and Commercial business. Down 67% in 2022, Is Palantir Stock a Buy for 2023? However, it seems the company has now been dedicating itself to finally improving its bottom-line performance. The potential 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). As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. And, that's also in line with PLTR's long-term sales view, back from Q4 2020. 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. Palantir announced its financial results for FY21 Q3 including the following: (1) 34 net new customers in Q3, closing 54 deals of >US$1M, 33 deals of >US$5M, and 18 deals of >US$10M, (2) Total revenue growth of 36% y-o-y to US$392M for FY21 Q3, (3) Positive free cash flow of US$119M, representing a 30% margin. I hope to see you inside Growth Stock Renegade. Currency in USD Follow 2W 10W 9M 6.96 -0.05 (-0.71%) At close: January 13 04:00PM EST 6.94 -0.02 (-0.29%) 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. In fact, based on the companys FCF projections, InvestorPlace contributor Mark Hake has a price target of $38.81 for Palantir. 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. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. Both PYPL and ADBE were "cannibals" and appreciated over 600%. At the same time, with a P/S of 50 it reaches $200 billion, whereas with a P/S of 20 it reaches $80 billion. 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. This is on the low side because of the weak return on invested capital. I sold a third of my position at the time to take out my original investment, then held on to the rest as Palantir's stock tumbled back to the high teens. Please. WebIn addition, there are up to 0.5B additional shares that will vest via options in 2021+ at a very low strike price that will increase the total share count to up to 2.2B and cause a Share dilution So according to their 10-k annual report, they have 1.792 billion outstanding shares and 743 million outstanding options (exercisable in the period of multiple years) as of end of 2020, of which 133 million of them will expire by end of 2022. 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). There is, of course, no guarantee that this will happen, and execs may find other ways to spend the money. 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. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. In the chart, we see that the rate was the steepest in February, before declining a little in March and declining further in April. its strong growth and its great position in its industry. Invest better with The Motley Fool. The companys valuation could thus be well above $20 billion if public investors are willing to buy the shares where theyve traded most recently in the private market. Palantir is pursuing a direct listing rather than a traditional IPO, meaning its not raising capital and is instead allowing existing stakeholders to sell shares to new investors. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. 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. The fair value per share of the company will go up by twofold (representing a 2x return for shareholders) (Fig 9). Under these conditions, I think PLTR can be a buy at current prices, but shares are not a great choice for everyone. Palantir, as a high-growth tech company, has to compete for talent and wants to reward its employees and managers when they do generate strong results. Proven research methods championed by growth stock investors like Peter Lynch, Richard Koch, and Phil Fisher. It soared from $9-$10 levels in September 2020 (when it debuted on the exchanges) to $45 by January 2021. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. According to Tipranks, Jonathan is among the top 0.5% of bloggers (as of January 10, 2022: https://www.tipranks.com/bloggers/jonathan-weber). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Due to the fact that a high-growth company also has many other ways to invest its operating cash flows, apart from using them for buybacks, it seems likely that buybacks will not be a priority in 2021 and 2022, and possibly beyond that. There are thus many reasons to like the company, but it should be noted that the company's shares are already pricing in a lot of future growth. Thanks for pointing this out. 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. MSFT is the only "cannibal" of this bunch. 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. Changes in these assumptions may have a material impact on the backtested returns presented. I remain bullish. Hence, projecting such valuations does not seem realistic and the base cases outcome is recommended. The real question isn't compensation but dilution and share count. Of course, revenue growth of 30% for the next several years is impressive. Insider sales are hurting shareholders. 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. This is the case for any IPO. Of particular concern was the approximately. ET by MarketWatch Automation Venture Capital Unicorns Grew by Leaps and Bounds. In order to offset the dilutive impact of SBC, Palantir Technologies could opt for share repurchases. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. Could Palantir Become the Next Salesforce? I know usual share dilution doesn't affect the company's fundamentals/story, but this seems way too extreme for shareholders to ignore. For example, C3.ai (AI -0.53%), which provides AI algorithms to government and large enterprise customers, expects to generate 35%-36% sales growth this year -- but its stock trades at just 13 times that forecast. 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. Perhaps it would be easier for investors to accept Palantirs dabbling in gold and bitcoin if it wasnt for the continuing dilution of shares that is happening as management exercises warrants. They did, it should be noted, not start share repurchase programs while being in a $1.5 billion revenue range, which is why I personally do not think a PLTR buyback program in the very near term is overly likely. 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