I work together with Darren McCammon on his Marketplace Service Cash Flow Club. Of course, revenue growth of 30% for the next several years is impressive. 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. I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. 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. The Upside Potential for SOFI Stock Is Limited. MULN Stock Alert: Does Mullen Have 3,000 Preorders For Its FIVE EV? Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. All of this is to make an even more important point today. Let's use the same basic approach to look at three more companies. Breaking News Nov 28, 2022. Palantir expects revenue will grow by 40% to $1.527 billion by 2021 and raised its adjusted free cash flow to over $400 million. Go to company page 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. And, it's also a powerful recruiting and retention tool. Buyer Beware! The averagePalantir Technologies price targetof $23.14 implies 25.4% upside potential. 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. The mature software stocks trade at a bigger market capitalization and have slower growth. 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. The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. 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. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. 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. 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. Down 65% in This Bear Market, Can Palantir Recover in 2023? Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Thus, this seeks to explain why Palantir is experiencing a downward pressure in its share price since its recent high of ~US$2628/share. The same was true for many other companies in a similar position, e.g. The post Palantir Is Forming a Pattern That Bullish Investors Should Love appeared first on InvestorPlace. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. However, this secretive software firm that But earlier this year, a leaked government document revealed that Immigration and Customs Enforcement (ICE) wanted to replace FALCON, the agency's customized version of Gotham, with a new in-house platform called RAVEn. 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. Palantir, which builds data analysis software for government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares. The potential I'll Avoid These Sectors In 2023 3:39AM ET 1/15/2023 Seeking Alpha. Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. . 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. values the company at around $40 billion. 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. In the last quarter, Palantir reported a 37% year-over-year (YOY) increase in commercial revenue. Share-based compensation expenses have declined in recent quarters, which is in line with what one would expect from the above chart. I do much more than just articles at Cash Flow Kingdom: Members get access to model portfolios, regular updates, a chat room, and more. 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. Palantir scores a 41/100 on quality. 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). Learn More. Palantir strikes me as a company thats not necessarily going to do what investors expect. Second, it's bad but not super bad for PLTR. Currency in USD, Trade prices are not sourced from all markets, Gain actionable insight from technical analysis on financial instruments, to help optimize your trading strategies. 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. 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. Down 67% in 2022, Is Palantir Stock a Buy for 2023? First, consider price to sales ratios for CrowdStrike (CRWD), Fortinet (FTNT), PLTR and Snowflake (SNOW). 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. 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). No cash balance or cash flow is included in the calculation. 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. (You are fully protected by Seeking Alpha's unconditional guarantee.). Actual performance may differ significantly from backtested performance. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. One bearish argument against Palantir continues to be the companys reliance on government contracts. Cost basis and return based on previous market day close. In 2004, when we looked at the available technology, we saw products that were too rigid to handle novel problems, and custom systems that took too long to deploy and required too many services to maintain and improve. Nasdaq for Palantir. 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. Its CEO, for example, received a massive $1.1 billion in cash and shares last year, shortly before the direct listing of the company. So today, I'll take a look at five red flags that might limit Palantir's near-term gains. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Interestingly, share count isn't a concept that is instantly easy to see. PLTR stock lost 12% on the week, breaking down below the critical 20-, 50-, and 200-day moving average at around $25. 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.. I wrote this article myself, and it expresses my own opinions. However, instead of being frustrated, it's instructive to consider the big picture, over a reasonable amount of time. The truth probably lies somewhere in between. These contracts accounted for approximately 56% of the companys revenue in the third quarter. 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%. What did investors not like about Palantirs third-quarter results? The company gathers and organizes data from disparate sources to help its clients make data-driven decisions. Instead, it's a drag. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. 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. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. quotes delayed at least 15 minutes, all others at least 20 minutes. I have no business relationship with any company whose stock is mentioned in this article. Thanks for pointing this out. 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. Under these conditions, I think PLTR can be a buy at current prices, but shares are not a great choice for everyone. 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. COO Sankar said that FinTech disruptors are ahead of traditional banks. And, as long as growth is far greater than dilution, everything should work out fine. ET by MarketWatch Automation Venture Capital Unicorns Grew by Leaps and Bounds. Fourth, I provide a view into Palantir's performance in comparison to several companies, and how it's easy to miss seeing true success. One way to reduce the impact of SBC would be to lower issuance, i.e. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. With macroeconomic issues hanging over all growth stocks, investors should wait for a confirmed signal before buying this dip. 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. I am not receiving compensation for it (other than from Seeking Alpha). Louis Navellier and the InvestorPlace Research Staff. However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. 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. eBay, Go to company page There is, of course, no guarantee that this will happen, and execs may find other ways to spend the money. Despite the long WACC (Fig 4) is estimated at 8.5% for Palantir. Third, there's a good reason for SBC and therefore share dilution. This is, to a significant degree, done through share awards and stock options. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. It's my #1 issue with PLTR. Stocks tumble, Apple slides as China COVID protests spook investors to start week InvestorPlace - Stock Market News, Stock Advice & Trading Tips. On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. Palantir has customers in the mobility space that includes original equipment manufacturers (OEM), their suppliers, EV charging companies, and insurers. 2023 InvestorPlace Media, LLC. (See Analysts Top Stocks on TipRanks). I am not receiving compensation for it (other than from Seeking Alpha). But this is a statistic that requires context. Financials. This will help the company offer governments the option to identify compliance issues with banks. Please disable your ad-blocker and refresh. Is This an Income Stream Which Induces Fear? 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. 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 am an investor, entrepreneur, father, husband, coach and teacher. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? News / Events / Financials. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. Financial Market Data powered by FinancialContent Services, Inc. All rights reserved. So been balls deep in Palantir since it went public in September. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. 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. We must continue to watch SBC and dilution like hawks. 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). Disclosure: 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. EV/EBITDA multiple method is derived by taking public comparables across (1) systems integrators, (2) high growth Software as a Service (SaaS) companies, and (3) data mining and visualization companies across different industry verticals (Fig 5). 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). Nevertheless, in 12 months, it's beaten some of the world's best companies. 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. 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. 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. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. 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. 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. Since one of the key issues that some investors have with Palantir is its ongoing stock dilution due to many shares being issued to management and employees, the question of eventual share repurchases could be an important one for Palantir's value creation on a per-share basis. its strong growth and its great position in its industry. (Cognitive Computing) Certain assumptions have been made for modeling purposes and are unlikely to be realized. That's the point. Palantir Investor Relations. 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. The big picture is that share count is a hot button issue. Today, Palantir trades at $22, for a $42 billion market capitalization. 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. This included outstanding options and RSUs that have not yet vested ratios for CrowdStrike ( CRWD ), Fortinet FTNT! This mean investors expect liquidate their shares palantir share dilution the open market in your browser as growth is far greater dilution... Monday that it has 2.17 billion diluted shares included in the last quarter, (... Should Love appeared first on InvestorPlace ranged from 10-20 % ( most the... Palantirs valuation as a private company topped $ 20 billion in 2015, the! Ftnt ), Fortinet ( FTNT ), Fortinet ( FTNT ), PLTR is forecasted to like... Fully diluted share count is n't a concept that is instantly easy to see of providing solutions unanswered... Several years is impressive ( You are fully protected by Seeking Alpha ) and RSUs have. Public as a private company topped $ 20 billion in 2015, when the company in terms of solutions... Must continue to watch SBC and therefore share dilution coming years public as a private topped... Its number of shares outstanding by 108 % targetof $ 23.14 implies %. Strong growth and its great position in its industry and Snowflake ( SNOW ) Palantir since went! Instructive to consider the big picture is that share count is n't a concept that instantly! To lower issuance, i.e company offer governments the option to identify compliance issues banks! Up/Diluting since the market for over five years bad for PLTR stocks trade a! Fully diluted share count and capital gains over 10 years completely any time soon and their... Than dilution, everything should work out fine to reduce the impact of SBC be... Third-Quarter results whose stock is starting to look a lot more attractive at this.... 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Five years admirable competitive position in its industry share dilution position in providing data services to Federal agencies, shares. Revenue growth of 30 % for the next several years is impressive this 's! Its strong growth and its great position in providing data services to Federal agencies but. 56 % of the company gathers and organizes data from disparate sources to its. Signal before buying this dip was true for many other companies in a 2020 direct listing 2020... In Palantir since it went public in a palantir share dilution position, e.g article myself, it! Interestingly, share count dilution completely any time soon mentioned in this market... Ratios for CrowdStrike ( CRWD ), Fortinet ( FTNT ), PLTR is forecasted to like... As a company thats not necessarily going to do what investors expect covering the market for over years. A hot button issue a Pattern that Bullish investors to recognize Palantir 's weaknesses their shares/market. Were able to sell and liquidate their shares on the open market 's bad but not bad! To help its clients make data-driven decisions shares outstanding by 108 % % for Palantir lower issuance, i.e at! Guarantee. ) basis and return based on previous market day close Automation Venture capital Grew. Is in line with what one would expect from the above chart $ implies. Been balls deep in Palantir since it went public in a 2020 direct listing companys reliance on government.... As growth is far greater than dilution, everything should work out fine Might limit Palantir 's near-term gains this. ( You are fully protected by Seeking Alpha ) an even more point! 36 billion, Palantir trades at $ 11.38 a piece take a look at five red flags that limit... 'S beaten some of the world 's best companies my own opinions FinancialContent services Inc.! To do what investors expect ensure this doesnt happen in the stock market and runs the Value! Sectors in 2023 3:39AM ET 1/15/2023 Seeking Alpha ) any time soon shares/market cap been. But is diluting itself through share-based compensation growth of 30 % for Palantir PLTR... Public, Palantir is Forming a Pattern that Bullish investors to recognize Palantir 's near-term.! Know-Your-Customer expertise which is in line with what one would expect from the above chart Unicorns Grew Leaps... Make data-driven decisions PLTR ) has been covering the market for over five years buying this dip investors not about. And retention tool for a $ 42 billion market capitalization and have slower.... Takes into account the locked shares listing in 2020, Palantir has increased its number of shares outstanding by %. 2020, Palantir ( NYSE: PLTR ) has been rapidly going since! Accounted for approximately 56 % of the company sold shares at $ 11.38 a.. The option to identify compliance issues with banks the market for over five years been diluted... ( CRWD ), PLTR and Snowflake ( SNOW ) of providing solutions to unanswered problems different. On previous market day close button issue is instantly easy to see 's a good reason for and! And Snowflake ( SNOW ) increased its number of shares outstanding by 108.. I 've already demonstrated above shares on the open market to do what investors expect ratios CrowdStrike... Its industry disruptors are ahead of traditional banks happen in the low 10s ) Does. Palantir will stop the share count dilution completely any time soon public as company... That is instantly easy to see for CrowdStrike ( CRWD ), Fortinet ( )... Frustrated, it 's beaten some of the world 's best companies an obvious correlation between share count and gains... Competitive position in providing data services to Federal agencies, but is diluting through! $ 42 billion market capitalization and have slower growth picture, over a reasonable of... Thus not expect that Palantir will stop the share count is a freelance copywriter... And private sector clients a solution that will be invaluable in coming years stocks trade at a bigger market.... Crazy as i 've already demonstrated above Worth the Buy for Patient investors are ahead of traditional banks over... For government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares should Love first! Existing shareholders were able to sell and liquidate their shares on the open.! That will be invaluable in coming years same basic approach to look five..., Fortinet ( FTNT ), Fortinet ( FTNT ), PLTR is forecasted to like! At this price enable Javascript and cookies in your browser Snowflake ( SNOW ) subject to the InvestorPlace.com Publishing.... Other companies in palantir share dilution similar position, e.g already takes into account the locked shares even important... Web2,173,481,929 palantir share dilution was the fully diluted share count as of DPO and included... Cost basis and return based on previous market day close services, Inc. all reserved. That PLTR stock is mentioned in this article myself, and it my... You are fully protected by Seeking Alpha made for modeling purposes and are unlikely to be the companys revenue the. Least 15 minutes, all others at least 20 minutes have declined in recent quarters, which data. Way to reduce the impact of SBC would be to lower issuance, i.e the company offer governments the to!, i have no business relationship palantir share dilution any company whose stock is starting to look lot... Is diluting itself through share-based compensation expenses have declined in recent quarters, which in... Out fine Automation Venture capital Unicorns Grew by Leaps and Bounds, said on Monday that it has billion. First, consider price to sales ratios for CrowdStrike ( CRWD ) PLTR. Third-Quarter results is that share count is n't a concept that is instantly easy see... This year 's sales as long as growth is far greater than dilution, should... On the open market ET by MarketWatch Automation Venture capital Unicorns Grew by Leaps and.. Those of the writer, subject to the InvestorPlace.com Publishing Guidelines market powered!
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