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. As such, the fair value per share as mentioned above may not represent the true value since we have yet to account for the potential dilution of RSUs. Insider sales are hurting shareholders. 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. 1125 N. Charles St, Baltimore, MD 21201. Lets take a look at their Government and Commercial business. I have no business relationship with any company whose stock is mentioned in this article. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. 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. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Please note all regulatory considerations regarding the presentation of fees must be taken into account. 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. Stocks tumble, Apple slides as China COVID protests spook investors to start week Palantir scores a 41/100 on quality. Backtested performance is not an indicator of future actual results. 3 EV Stocks to Own for the Next 10 Years, 3 Stocks Set to Soar When the Bears Get Short-Squeezed, 3 Stocks That Are About to Get Absolutely Slaughtered. 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. We have war fighters who follow our nutrition. Its balance sheet thus looks pretty strong, with cash clearly outsizing any debt. At this point, I've written well over 20 articles on the company. The Motley Fool owns and recommends C3.ai, Inc. and Palantir Technologies Inc. InvestorPlace - Stock Market News, Stock Advice & Trading Tips. WebTo give you an idea of how many shares were covered under the 2010 Plan, this is from the S-1 (emphasis mine): As of June 30, 2020, options to purchase 308,905,744 shares of So been balls deep in Palantir since it went public in September. 2023 InvestorPlace Media, LLC. The stock has a 52-week high of $45 and a 52-week low of $14.40. 5 Hypergrowth Stocks With 10X Potential in 2023. The real question isn't compensation but dilution and share count. I'll Avoid These Sectors In 2023 3:39AM ET 1/15/2023 Seeking Alpha. 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/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. Palantir, which builds data analysis software for government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares. Palantir has customers in the mobility space that includes original equipment manufacturers (OEM), their suppliers, EV charging companies, and insurers. Palantir's number of weighted-average shares rose 70% year over year at the end of 2020 following its direct listing. Eng, Go to company page (See Analysts Top Stocks on TipRanks). This is, to a significant degree, done through share awards and stock options. Feast your eyes on their share counts over the last 10 years or so. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. Palantir has never been a profitable companysince its inception. As the company relies heavily on stock-based compensation, its number of weighted average shares has been rapidly increasing over the period. The company knows that its hold in themission-critical technological area(military AI) is pretty good. The value score is 42/100. PLTR stock lost 12% on the week, breaking down below the critical 20-, 50-, and 200-day moving average at around $25. 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. I am an investor, entrepreneur, father, husband, coach and teacher. *Average returns of all recommendations since inception. 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. I suspect you are quite familiar with Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's why it's often far better to look at it over a period of time. The Motley Fool has a disclosure policy. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. 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). Join today for less than $2 per day. 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. It's still a major thorn in my side. General assumptions include: XYZ firm would have been able to purchase the securities recommended by the model and the markets were sufficiently liquid to permit all trading. As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. I'll have to review this more closely in a future article. 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. Still, that valuation comparison is not fair. First, the company is growing its commercial revenue. The TipRanks Smart Score performance is based on backtested results. Palantir worked exclusively for the U.S. Government previously and built a very strong relationship with it during that time. I am not receiving compensation for it (other than from Seeking Alpha). The company is one of the most trusted analytics platforms for the U.S. government and its allies. TipRanks is a comprehensive research tool that helps investors make better, data-driven investment decisions. Share based compensation where investors pay the employees no the company. But this is a statistic that requires context. Nasdaq Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. I'm simply not convinced that dilution is "deadly" for high quality, high growth companies with a long time horizon. The cost of equity is calculated with the CAPM formula, reflecting USAs equity risk premium, risk-free rate, and Palantirs historical 1 year Beta. Nevertheless, 287% is still quite robust. A caveat to Palantirs share price and its current projection as shown above has ignored for the accumulated stock-based compensation accruing to 246M of Restricted Stock Units (RSUs) that will be exercised in a projected weighted average vesting period of 3.2 years (166M current, 80M projected from 20222025). 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. The mature software stocks trade at a bigger market capitalization and have slower growth. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. Plus, you are fully protected by Seeking Alpha's unconditional guarantee. However, instead of being frustrated, it's instructive to consider the big picture, over a reasonable amount of time. I'm not sure this is for you but I've just launched a brand new premium service called Growth Stock Renegade. There's no dilution happening, they aren't issuing new shares. In order to offset the dilutive impact of SBC, Palantir Technologies could opt for share repurchases. 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. Palantir can implement solutions quickly. 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. Is this happening to you frequently? Invest better with The Motley Fool. Over the last couple of months, shares mostly traded in the low $20s, which values the company at around $40 billion. Palantir Technologies Inc. shares fell the most in almost a year after the data software company reported financial results that illustrated a continued lack of net profit. Certain assumptions have been made for modeling purposes and are unlikely to be realized. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. ICE has been doling out new contracts to develop RAVEn over the past three years, and its imminent launch would likely end the agency's relationship with Palantir -- which has attracted a lot of unwanted attention over its usage of FALCON to track and deport undocumented immigrants. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. Analyst Report: Palantir Technologies Inc. NYSE - Nasdaq Real Time Price. The Upside Potential for SOFI Stock Is Limited. Since going public as a direct listing in 2020. ) Strong deal value, growing 50% to $3.6 billion, signals strong business ahead. Fourth, I provide a view into Palantir's performance in comparison to several companies, and how it's easy to miss seeing true success. Palantir Technologies ( PLTR) has been trading publicly for a little over a year and has gained about 100% since then. The company works closely with the U.S. Army and the Department of Defense (DoD). At the same time, however, cash flows are not overly huge relative to how the company is valued, and even if all operating cash flows were diverted to share repurchases, the company would only manage to buy back around 1% of its shares per year -- less than the rate at which its share count has risen so far. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. I am the founder of Growth Stock Renegade, a premium service on Seeking Alpha's Market Place. 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. 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%) 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. (Cognitive Computing) For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. But its hard to find fault when the company is growing both sides of the business. Palantir SBC is costly and is here to stay, therefore must be incorporated into a financial valuation. One out of eight analysts have given Palantir a Buy rating, three have Hold ratings, and the remaining four have suggested a Sell. How does all this look in relation to simple share price gains over the same period? Palantir generates just over half of its revenue from government contracts. 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. In total, it received $610 million which accounts for 56% of its total revenue. Actual performance may differ significantly from backtested performance. The potential On the Stockrover stock grading site, Palantir stock has a fair quality and valuation score. 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. 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. 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. Could Palantir Become the Next Salesforce? Go to company page Please disable your ad-blocker and refresh. So I just looked into PLTR sec filings to understand why their share dilution has been so significant. I looked up other tech stocks' sec filings (SQ, FB, GOOG, etc.) Just as it looked as though Palantir Technologies (NYSE:PLTR) would rally again, its quarterly earnings rained on its parade. Commercial revenue accounted for 44% of the total in Q3. And, as long as growth is far greater than dilution, everything should work out fine. 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. I know usual share dilution doesn't affect the company's fundamentals/story, but this seems way too extreme for shareholders to ignore. Here's what PLTR is saying about their growth over the next several years. In the last quarter, Palantir reported a. in commercial revenue. 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. I have no business relationship with any company whose stock is mentioned in this article. 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. So I I have no business relationship with any company whose stock is mentioned in this article. I am not receiving compensation for it (other than from Seeking Alpha). Palantir had a share price of $30. However, the stock market did not seem to reciprocate such good news and instead, Palantir has dropped ~15% from US$ 26.75 to US$22.83 as of 15th Nov 2021. Really, the point is that PLTR's racing toward at least $4 billion in revenue by 2025 and various multiples make it clear to me that PLTR will continue to appreciate in price as a result. 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. Investors are not benefiting immediately from Palantirs growth as earnings are diluted. The company will look to turn profitable come FY26 and will start to experience improving margins (both EBITDA and net margins) in FY26 and FY27 (Fig 3). Let's use the same basic approach to look at three more companies. This is all very rough, of course. Palantir has been operating for the past two decades and has been helping organizations undertake accurate data-driven decisions. This information is provided for illustrative purposes only. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. As long as management grows the company faster than it dilutes shareholders, the stock will outperform the index. 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. And the companys overall revenue was up 36% YOY at $392 million. These contracts accounted for approximately 56% of the companys revenue in the third quarter. I have generated over well over 100% gains many times following a proven growth stock method championed by investors like Peter Lynch, Richard Koch, and Phil Fisher. Expect the company to win more customers in the coming year. 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). That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. 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. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. 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. Shares that are issued to reward key personnel, be it executives or engineers, do have a large impact on the overall share count, which can be seen in the following chart: Palantir's shares outstanding have risen by close to 100 million in 2021 alone, from a little below 1.8 billion to a little less than 1.9 billion. 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. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. Palantir has massively diluted its shareholders whereas Datawalk has just gradually issued shares over time. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. Buyer Beware! Palantir revenue has been increasing over the years. 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. I believe this is why PLTR leadership strongly emphasizes non-GAAP earnings. This is AMC / GameStop levels of dilution. 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. MULN Stock Alert: Does Mullen Have 3,000 Preorders For Its FIVE EV? 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. Last September, I bought a large position in Palantir Technologies (PLTR -1.84%)at just under $10 per share after it went public through a direct listing. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. 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. Virtually every chart has this phrase in the footnotes: "excludes stock-based compensation and related employer payroll taxes." Further, the values in Fig 7 do not incorporate the dilution from stock-based compensation and there is a possibility that Palantir is actually overpriced. 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. Palantir stock has been heavily diluted since it went public in a 2020 direct listing. 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. Palantir's stock was trading about 6.3% lower at $22.73 per share on Wednesday at the time of publication. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. Both PYPL and ADBE were "cannibals" and appreciated over 600%. Palantir stock has been heavily diluted since it went public in a 2020 direct listing. The company has an admirable competitive position in providing data services to Federal agencies, but is diluting itself through share-based compensation. Since going public, Palantir has increased its number of shares outstanding by 108%. Estimated return represents the projected annual return you might expect after purchasing shares in the company and holding them over the default time horizon of 5 years, based on the EPS growth rate that we have projected. Cornerstone, Go to company page Is this happening to you frequently? It is common trend with all companies with negative EPS as they can not issue bonds which need to be repaid. If you want to reach out, you can send a direct message here on Seeking Alpha, or an email to jonathandavidweber@gmail.com. And when you join, I'll instantly share my actively managed growth stock portfolio. A subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and potential investment risks. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. 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. Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Now that shares are down slightly, Palantir is a stock to consider again. In fact, based on the companys FCF projections. Facebook (FB) or Alphabet (GOOG) (GOOGL) when they were smaller. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. The company is an unquestioned leader in the field of big data analytics. government.". That dilution will likely continue as long as Palantir remains unprofitable. Insider sales are hurting shareholders. 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. Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. 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. 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? Enter your email to receive our newsletter. If history repeats itself, then PLTR stock could set up as a profitable trade. Moreover, the company still has huge room for growth as its AI-powered data mining tools are not going to lose importance anytime soon. 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. The averagePalantir Technologies price targetof $23.14 implies 25.4% upside potential. 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). I wrote this article myself, and it expresses my own opinions. 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. Someone else is enjoying the rewards. The portfolio's price can fluctuate, but the income stream remains consistent. I remain bullish. Furthermore, as earnings legitimately start to appear, without adjustment, investors will be able to better assess the situation. Perhaps surprisingly, both PYPL and ADBE have fewer shares outstanding now than earlier, and that's despite being high growth companies. 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). This will help the company offer governments the option to identify compliance issues with banks. He has been writing for InvestorPlace since 2019. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Nicolas Chahine correctly observed that in its short time as a publicly traded company, every time the stock has dropped below $20 its. 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. 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. Down 67% in 2022, Is Palantir Stock a Buy for 2023? The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. There are also some issues that should not be neglected, however, such as Palantir's valuation and its high SBC. Here's how their share counts look over the last five years or so: Obviously CRM is diluting; up 51%. 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. Despite these weaknesses, I remain bullish on Palantirs future. Moreover, Palantir works with both the government as well as the commercial front, which provides its business with a wider moat. I hope to see you inside Growth Stock Renegade. I am bullish on PLTR stock. For now, investors should assume the stock is stuck in a $22 $27 trading range because earnings per share are not expanding. We believe there are no alternatives that can compete on cost, speed, and performance.. I think it's useful to inspect the narratives. 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. Uber, Lucky you got in in September. Luke Lango will reveal how you could start collecting cash payouts like $4,600 in 48 days or $12,000 in 21 days, without touching risky options or any other confusing investments. Please. 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. Dear MULN Stock Fans, Brace Yourself for a Reverse Stock Split. Proven research methods championed by growth stock investors like Peter Lynch, Richard Koch, and Phil Fisher. 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. Thanks for pointing this out. 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. In this report, we look to uncover Palantirs financial growth story and assume a 30% y-o-y growth to determine if the projections stay feasible, then Palantir has indeed been mispriced and is currently undervalued. 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.
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