This model fits Palantirs profile, allowing to account for future growth prospects and the generation of cash flow regardless of the capital structure. The truth probably lies somewhere in between. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. 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. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Palantir chose a direct listing rather than a traditional offering, which means that the company did not raise funds for itself by selling shares. Instead, existing shareholders were able to sell and liquidate their shares on the open market. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. Here I do see a stronger relationship between share count and price. ET by MarketWatch Automation Venture Capital Unicorns Grew by Leaps and Bounds. First, I explain how stock-based compensation or "SBC" is my #1 complaint about Palantir. 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. Palantir is a high-growth company that operates worldwide in both commercial and government segments. Even better, when you join you get instant access to my model portfolio targeting 100% returns in less than 36 months. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. 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. 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. Banks may justify the return on investment (ROI) based only on the speed of the installation. 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. Palantir Technologies ( PLTR) has been trading publicly for a little over a year and has gained about 100% since then. SHARE THIS POST Just as it looked as though Palantir Technologies (NYSE:PLTR) would rally again, its quarterly earnings rained on its parade. We believe there are no alternatives that can compete on cost, speed, and performance.. 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. Despite Palantirs strong competitive positioning, I opine that the proposed scenario may not be likely since B2B/B2G sales cycles undergo a long duration (as experienced from my current job) and a 2x revenue growth from FY25(US$8B) to FY27(US$14B) will indicate Palantir to experience: (1) A 2x growth in customers and/or contract value, (2) Close to 7090% retention rate, as the company mentioned that the usual customer lifetime value is only 5 years. 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. Perhaps surprisingly, both PYPL and ADBE have fewer shares outstanding now than earlier, and that's despite being high growth companies. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The Motley Fool owns and recommends C3.ai, Inc. and Palantir Technologies Inc. The averagePalantir Technologies price targetof $23.14 implies 25.4% upside potential. Please disable your ad-blocker and refresh. Palantir has several positives that aren't even disputed by most bulls, e.g. I have no business relationship with any company whose stock is mentioned in this article. Is this happening to you frequently? As long as management grows the company faster than it dilutes shareholders, the stock will outperform the index. Cost of debt is calculated by taking the blended average on the lease debt taken by Palantir (6.35%) and credit facilities (2.75%) and adding the 10-year risk free rate. Gross margins are stronger than the S&P 500 average. The bulls will argue that Palantir's target of generating more than 30% annual sales growth justifies that higher price-to-sales ratio, but it's easy to find stocks with comparable growth rates at lower valuations. 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. Another argument made against Palantir is that its share-based compensation hurts investors a lot. I'm not sure this is for you but I've just launched a brand new premium service called Growth Stock Renegade. I have no business relationship with any company whose stock is mentioned in this article. Nasdaq In fact, based on the companys FCF projections, InvestorPlace contributor Mark Hake has a price target of $38.81 for Palantir. Palantir has customers in the mobility space that includes original equipment manufacturers (OEM), their suppliers, EV charging companies, and insurers. values the company at around $40 billion. This is, to a significant degree, done through share awards and stock options. There's no dilution happening, they aren't issuing new shares. All rights reserved. He has been writing for InvestorPlace since 2019. Both PYPL and ADBE were "cannibals" and appreciated over 600%. Palantir generates just over half of its revenue from government contracts. 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. 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. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. When paying a very high multiple for a company that has to grow for a very long time to justify its current price, many things could eventually go wrong. 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. Proven research methods championed by growth stock investors like Peter Lynch, Richard Koch, and Phil Fisher. Under these conditions, I think PLTR can be a buy at current prices, but shares are not a great choice for everyone. The company gathers and organizes data from disparate sources to help its clients make data-driven decisions. In turn, banks will respond by strengthening their compliance programs. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. Louis Navellier and the InvestorPlace Research Staff. I suspect you are quite familiar with Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). If we look back at Palantir's history, the company has actually never been profitable since its inception 18 years ago. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? contributing author for InvestorPlace.com and numerous other financial sites. Turning to Wall Street, PLTR stock has a Moderate Sell consensus rating. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. I appreciate your feedback, comments and questions. Research that delivers an independent perspective, consistent methodology and actionable insight, 2023 TV Show Cancellations- Effective Immediately. Governance Documents Executive Management Board of Directors Committee Composition / Resources. Of course, revenue growth of 30% for the next several years is impressive. 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. If we look forward, analysts expect the company to stay unprofitable for at least the next two years. Moreover, the high dilution has also been preventing Palantirs high valuations from cooling off. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. Breaking News Nov 28, 2022. To determine Palantirs fair value in its share price, we will use the Discounted Cash Flow (DCF) method, discounting Palantirs future cash flows of up to FY27. 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. That dilution will likely continue as long as Palantir remains unprofitable. Cost basis and return based on previous market day close. 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. At this point, I've written well over 20 articles on the company. Palantirs government business revenue grew by 77%. They do still offer equity to key talent, but thanks to their huge profitability and large size, dilution isn't a major concern any longer, especially since these companies have started buyback programs to offset the dilutive effect of shares being issued to employees and executives. That's the point. Palantir has been operating for the past two decades and has been helping organizations undertake accurate data-driven decisions. Copyright 2023 InvestorPlace Media, LLC. I am not receiving compensation for it (other than from Seeking Alpha). Today, Palantir trades at $22, for a $42 billion market capitalization. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. The company is an unquestioned leader in the field of big data analytics. In total, Palantir grew revenue by 36% year-over-year to $392 million. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. PLTR stock already tripled since its initial public offering. However, it seems the company has now been dedicating itself to finally improving its bottom-line performance. The information is not intended to be used as the basis of any investment decision by a person or entity. . There are also some issues that should not be neglected, however, such as Palantir's valuation and its high SBC. Changes in these assumptions may have a material impact on the backtested returns presented. Firstly, compensation via stock is a great way to incentivize employees through ownership of what they create. Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. 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). We essentially have built a food ontology that provides nutrition in mission critical systems. An adjusted free cash flow (FCF) of $119 million in the last quarter and a margin of 30% is hard to ignore. And, it's also a powerful recruiting and retention tool. 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. Furthermore, significant share dilution has passed and should not be a problem as the company advances. In its SEC filings, the company says its long-term goal is to make Gotham, its data mining platform, which serves dozens of government agencies, the "default operating system for data across the U.S. 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. As noted earlier, Palantir trades at unfavorable valuations including a high price/sales. ET. Its CEO, for example, received a massive $1.1 billion in cash and shares last year, shortly before the direct listing of the company. Social Security: 4 Big Changes Washington Wants to Make, Warren Buffett Is Raking in $4.84 Billion in Annual Dividend Income From These 6 Stocks, 3 Reasons Tesla Stock Is a No-Brainer Buy in 2023, 3 High-Growth Stocks That Could Be Worth $1 Trillion in 10 Years -- or Sooner, Join Nearly 1 Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. Buyer Beware! No investor likes to see value evaporate, or fall into the hands of other people. Uber, Lucky you got in in September. Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. 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. Third, there's a good reason for SBC and therefore share dilution. Palantir specializes in big data analytics. Palantir worked exclusively for the U.S. Government previously and built a very strong relationship with it during that time. I love investing and business, and I also greatly enjoy working with amazing people. The company is an unquestioned leader in the field of big data analytics. 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. It has a powerful A.I. I work together with Darren McCammon on his Marketplace Service Cash Flow Club. Furthermore, PLTR has a narrative to maintain. The market's interest in the data mining firm was muted at first, but its stock skyrocketed to $45 per share during the Reddit-fueled rally in late January. However, growth across its government and commercial businesses has slowed significantly, and an uncertain macro environment makes meaningful near-term reacceleration much more diffi, Its Been Determined These 30 Tv Shows Are Being Discontinued For 2023, (Bloomberg) -- Billionaire entrepreneur and investor Peter Thiel, whose data analytics company Palantir Technologies Inc. is vying for a 480 million ($595 million) National Health Service data contract, has described British peoples affection for the state-backed health service as Stockholm syndrome. Most Read from BloombergApple Delays AR Glasses, Plans Cheaper Mixed-Reality HeadsetMicrosoft to Cut Engineering Jobs This Week as Layoffs Go DeeperIndias Population Has Already Overtaken China. 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