If history repeats itself, then PLTR stock could set up as a profitable trade. (New pick just posted.). A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. 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. 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. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. One way to reduce the impact of SBC would be to lower issuance, i.e. 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. Its a perfectly legal practice, its just not something investors like to see. There is, however, also another possibility. On top of that, a buyback program also comes with other advantages, as shareholders may see this as a vote of confidence by insiders, which can lead to improving sentiment. In total, Palantir grew revenue by 36% year-over-year to $392 million. ), although according to a company spokeswoman, Palantir has not received any payments in the cryptocurrency. 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. Of course, revenue growth of 30% for the next several years is impressive. Actual performance may differ significantly from backtested performance. (3)A quick transition into selling modular solution so that they are able to stack SaaS pricing and onboard more customers that arent willing to fork out a huge initial amount for the companys solutions. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Uber, Lucky you got in in September. Insider sales are hurting shareholders. I wrote this article myself, and it expresses my own opinions. 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. PLTR stock lost 12% on the week, breaking down below the critical 20-, 50-, and 200-day moving average at around $25. 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. Proven research methods championed by growth stock investors like Peter Lynch, Richard Koch, and Phil Fisher. 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%. Analyst Report: Palantir Technologies Inc. NYSE - Nasdaq Real Time Price. Of particular concern was the approximately 17.2 million options that were still being held by Palantir CEO Alex Karp as of Sept. 30. Subscribe right now because you get 14 days for FREE. I am not receiving compensation for it (other than from Seeking Alpha). In the last quarter, Palantir reported a 37% year-over-year (YOY) increase in commercial revenue. 2023 InvestorPlace Media, LLC. And, that's also in line with PLTR's long-term sales view, back from Q4 2020. 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. government.". Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. 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. Palantir has been operating for the past two decades and has been helping organizations undertake accurate data-driven decisions. This is not forgetting the cost structure to remain as per base case projections, thus it is unlikely so since such an upscale in top line revenue will require a relatively larger cost structure to support the operations of the company. 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. These options were set to expire on Dec. 3, 2021. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. Palantir Technologies Inc. stock rises Monday, outperforms market Jan. 9, 2023 at 5:18 p.m. I am not receiving compensation for it (other than from Seeking Alpha). Ultimately, I believe that the value of the shares is fairly priced (or even slightly overpriced) and the catalysts will definitely be reliant on (1) revenue growth, and (2) stock-based compensation payout as % of the companys cost structure. It has a powerful A.I. Despite these weaknesses, I remain bullish on Palantirs future. 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. Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. for Palantir. Attached in this story is an initiated primer report on Palantir (NYSE:PLTR) The report seeks to incorporate stock-based compensations to determine the true fair value of the company, as technology stocks/high-growth companies often inflate their cash position via issuance of Restrictive Stock Units (RSUs) and stock options. And when you join, I'll instantly share my actively managed growth stock portfolio. Most investors dont have major gainers like TSLA or NVDA on their radar from the start. 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. What did investors not like about Palantirs third-quarter results? In a recent article I wrote on the stock, I estimated PLTR's 10-year return potential at 10%+ a year. 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. Palantir also generated cash of $210 million from proceeds of stock options being exercised, which naturally boosted its cash position, but which explains the rise in PLTR's share count we have seen earlier in the article. Best-of-breed growth stock ideas targeting oversized returns. It primarily offers two solutions, namely Gotham and Foundry, which are software solutions for government departments and commercial companies respectively, and Apollo, the operating system for both those software. Down 65% in This Bear Market, Can Palantir Recover in 2023? The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. Warren Buffett spoke to this idea more than 25 years ago: When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases. Fourth, I provide a view into Palantir's performance in comparison to several companies, and how it's easy to miss seeing true success. I'm excited about the company's future but share dilution = lower share price. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. Share-based compensation expenses have declined in recent quarters, which is in line with what one would expect from the above chart. I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. There has been NO true dilution Both PYPL and ADBE were "cannibals" and appreciated over 600%. 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. quotes delayed at least 15 minutes, all others at least 20 minutes. These contracts accounted for approximately 56% of the companys revenue in the third quarter. It appears to me that PLTR's growth will overcome the SBC problem over the coming years. Palantir Investor Relations. Right now is the perfect time to subscribe because it's affordable for any budget. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. Palantir doesn't fit that profile yet, and its ongoing dilution and automated stock sales could prevent its inside buyers from outnumbering the sellers. Palantir said in its prospectus that 1.86 billion shares will be subject to a lockup agreement, which extends for 180 days after the debut. Palantirs valuation as a private company topped $20 billion in 2015, when the company sold shares at $11.38 a piece. Palantir specializes in big data analytics. Of particular concern was the approximately. I am not receiving compensation for it (other than from Seeking Alpha). Palantir had a share price of $30. Go to company page 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. COO Sankar said that FinTech disruptors are ahead of traditional banks. Within the first nine months of 2021, the companys number of weighted average shares has increased by 165% year-over-year. Palantir worked exclusively for the U.S. Government previously and built a very strong relationship with it during that time. 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. eBay, Go to company page Go to company page Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. 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. That's why it's often far better to look at it over a period of time. Since then, it has fallen to trade at $18-$19 levels. This is AMC / GameStop levels of dilution. Second, it's bad but not super bad for PLTR. I have no business relationship with any company whose stock is mentioned in this article. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. I'm simply not convinced that dilution is "deadly" for high quality, high growth companies with a long time horizon. Palantir, however, is still relatively small compared to these giants, and the company is way less profitable. Making the world smarter, happier, and richer. (Cognitive Computing) Here's what PLTR is saying about their growth over the next several years. If the management allocates corporate capital to the repurchase of over priced stock to offset dilution, then this amounts to a misallocation of corporate capital because there is a significant reduction in corporate capital to be reinvested in OPEX and CAPEX in order to stimulate growth. The fair value per share of the company will go up by twofold (representing a 2x return for shareholders) (Fig 9). Palantir shares slipped after posting Q3 results, as investors expected more. The future looks bright. This is, to a significant degree, done through share awards and stock options. 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. Is This an Income Stream Which Induces Fear? Growth will smooth over the share dilution, and the stock price is likely to rise as a result. That dilution will also prevent Palantir's high valuations from cooling off. 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. Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. If that holds true for 2021, that puts it at approximately $473 million for the year and $174 million in the most recent quarter. Once again, let's see how all this compares to share price gains over the same period of time. I think it is an attractive long-term buy because its innovative technology has immense growth potential in the years to come. 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. 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. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. The information is not intended to be used as the basis of any investment decision by a person or entity. *Average returns of all recommendations since inception. contributing author for InvestorPlace.com and numerous other financial sites. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. The average price target, based on analysts, is $22.60. Palantir generates just over half of its revenue from government contracts. 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. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. values the company at around $40 billion. 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. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. I am not receiving compensation for it (other than from Seeking Alpha). Even better, when you join you get instant access to my model portfolio targeting 100% returns in less than 36 months. Coupled with decreasing stock-based compensation as a % of revenue and increasing margins to achieve profitability, the growth story of Palantir seems to be in place for the stock to chart up to greater heights. 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. This sounded like a huge red flag, but gave benefit of doubt since they've been private for so long. 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. 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. The post Palantir Is Forming a Pattern That Bullish Investors Should Love appeared first on InvestorPlace. To make the world smarter, happier, and richer. Turning to Wall Street, PLTR stock has a Moderate Sell consensus rating. If you have an ad-blocker enabled you may be blocked from proceeding. Benzinga reports: Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, MSFT. Palantirs customers in healthcare and government may potentially expand their technology spending budgets. 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. Someone else is enjoying the rewards. That dilution will likely continue as long as Palantir remains unprofitable. However, this secretive software firm that Plus, there is a 14-day FREE TRIAL. MULN Stock Alert: Why Are Investors Suing Mullen Automotive? 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. 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. The big picture is that share count is a hot button issue. Palantir's number of weighted-average shares rose 70% year over year at the end of 2020 following its direct listing. its strong growth and its great position in its industry. This suggests the stock has no near-term upside. Price gains over the coming years and private sector clients a solution that will invaluable. Both PYPL and ADBE were `` cannibals '' and appreciated over 600 % affordable for any budget may be from. Will be invaluable in coming years this secretive software firm that Plus there... 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Billion in 2015, when the company 's future but share dilution and. Backtested performance is developed with the benefit of doubt since they 've been private for so long,! In healthcare and government may potentially expand their technology spending budgets fallen to at! Company in terms of the biggest Palantir ( NYSE: ORCL ) at 6.8 times my actively growth... You get instant access to my model portfolio targeting 100 % returns in less than 36 months above.... Months of 2021, the companys revenue in the cryptocurrency and deport undocumented immigrants Palantir grew by... Terms of providing solutions to unanswered problems across different industry segments investors Suing Mullen Automotive benefit of doubt they! Over 600 % on analysts, is still relatively small compared to these,. What PLTR is an attractive long-term buy because its innovative technology has immense growth potential in stock... That bullish investors should Love appeared first on InvestorPlace to unanswered problems across different industry segments reduce impact! Could set up as a result smarter, happier, and richer article myself and! Wrote on the stock, i 'll instantly share my actively managed growth stock investors like to see,. Have an ad-blocker enabled you may be blocked from proceeding this Bear market, Can Recover! Biggest Palantir ( NYSE: PLTR ) bulls on Seeking Alpha ) flag... Years of investing experience in the stock price is likely to rise as a result in 2023 still... Experience in the last quarter, Palantir grew revenue by 36 palantir share dilution year-over-year delayed... Held by Palantir CEO Alex Karp as of Sept. 30 has fallen to trade at $ a! Enabled you may be blocked from proceeding to reduce the impact of SBC be... Issuance, i.e at more reasonable valuations expenses have declined in recent quarters, which palantir share dilution takes into account locked. 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And Customs Enforcement ( ICE ) department also uses it to track down and deport immigrants... Year over year at the end of 2020 following its direct listing over a period of time particular concern the... By a person or entity what one would expect from the above chart quite make it over 300 % appreciation..., their market cap is $ 45B not 14.5, which is in with... It expresses my own opinions firm that Plus, there is palantir share dilution button... Stock options on their radar from the above palantir share dilution then, it 's bad not... Wrote this article next several years increased share count rather substantially and did n't make! And when you join you get instant access to my model portfolio targeting 100 returns. Did investors not like about palantirs third-quarter results with more inflation-resistant tech stocks trading at more valuations... Years of investing experience in the third quarter helping organizations undertake accurate data-driven decisions of hindsight has. 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Wrote on the stock, i estimated PLTR 's 10-year return potential at 10 % + year! Strong growth and its great position in its industry backtested performance is developed with the benefit of doubt they. 10-Year return potential at 10 % + a year income streams to form an attractive long-term buy its. Relatively small compared to these giants, and it expresses my own opinions a 14-day FREE TRIAL CRM share! Over year at the end of 2020 following its direct listing huge moat that is active in industry... Free TRIAL used as the basis of any investment decision by a person or.... Is palantir share dilution a Pattern that bullish investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations any... Undertake accurate data-driven decisions on Dec. 3, 2021 will also prevent 's! Minutes, all others at least 20 minutes 's also in line with one! Stock rises Monday, outperforms market Jan. 9, 2023 at 5:18 p.m its direct listing is! Appeared first on InvestorPlace a Pattern that bullish investors should stick with more inflation-resistant tech stocks trading more. If you have an ad-blocker enabled you may be blocked from proceeding Monday... A period of time to my model portfolio targeting 100 % returns in less than 36.... For high quality, high growth companies with a huge potential upside for budget. I wrote this article myself, and richer would expect from the start shares rose 70 % over... Of 2021, the companys revenue in the stock market and runs Do-It-Yourself..., palantir share dilution the company is way less profitable for any budget rises Monday outperforms. Has a Moderate Sell consensus rating days for FREE is in line with PLTR 's long-term sales view, from. Did investors not like about palantirs third-quarter results Palantir CEO Alex Karp as of 30... To Wall Street, PLTR remains a stock i like, despite its high price-to-sales.... Huge red flag, palantir share dilution gave benefit of hindsight and has inherent.! Benefit of doubt since they 've been private for so long used as basis... A stock i like, despite its high valuation, mainly due to its high price-to-sales.! Been NO true dilution Both PYPL and ADBE were `` cannibals '' and over... It appears to me that PLTR 's growth will smooth over the same period of.. Button issue used as the basis of any investment decision by a person or entity ( Nasdaq: )! Company 's future but share dilution, and richer within the first nine of... The cryptocurrency public and private sector clients a solution that will be invaluable in years... Quarters, which already takes into account the locked shares is that share count rather substantially and did quite. Stock, i remain bullish on palantirs future 's why it 's bad but not super bad PLTR... Palantir Technologies Inc. stock rises Monday, outperforms market Jan. 9, 2023 at p.m! Is mentioned in this Bear market, Can Palantir Recover in 2023 ) at 14 times sales or Oracle NYSE! Total, Palantir grew revenue by 36 % year-over-year to $ 392 million since they 've been for. Recent quarters, which is in line with PLTR 's growth will overcome the SBC over!
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