Palantir Might Be Worth the Buy for Patient Investors. Louis Navellier and the InvestorPlace Research Staff. On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. Palantir is structured to rob investors and their mission is a lie despite all of Karps fancy language about ontological domains. Share dilution from 244 million at IPO to 1.6 billion. Once again, let's see how all this compares to share price gains over the same period of time. And, if you've been following me for any time, you know that one of biggest concerns is PLTR's stock-based compensation, also known as SBC. The DCF valuation employs the Free Cash Flow to the Firm (FCFF) methodology to arrive at the intrinsic value of the company. Palantir, however, is still relatively small compared to these giants, and the company is way less profitable. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. Please note all regulatory considerations regarding the presentation of fees must be taken into account. I love investing and business, and I also greatly enjoy working with amazing people. A buyback program could solve the SBC issue, but do not expect one in the very near term, despite the fact that PLTR's balance sheet is clean. First, the company is growing its commercial revenue. Does it make it a bad investment? I have no business relationship with any company whose stock is mentioned in this article. This information is provided for illustrative purposes only. That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. There is, of course, no guarantee that this will happen, and execs may find other ways to spend the money. And I can certainly understand if investors might wonder why the company chose to deploy capital in this way as opposed to buying back shares. 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. 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. 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. Price as of January 18, 2023, 1:25 p.m. Strong deal value, growing 50% to $3.6 billion, signals strong business ahead. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. WebIn addition, there are up to 0.5B additional shares that will vest via options in 2021+ at a very low strike price that will increase the total share count to up to 2.2B and cause a Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. The mature software stocks trade at a bigger market capitalization and have slower growth. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. Research that delivers an independent perspective, consistent methodology and actionable insight, 2023 TV Show Cancellations- Effective Immediately. He has been writing for InvestorPlace since 2019. Lets take a look at their Government and Commercial business. *Average returns of all recommendations since inception. These options were set to expire on Dec. 3, 2021. 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. PLTR stock already tripled since its initial public offering. Again, I'm almost certain you've heard of PayPal (PYPL), Salesforce (CRM) and Adobe (ADBE). This is, to a significant degree, done through share awards and stock options. Third, its growth in healthcare is rising. Chris Lauis acontributing author for InvestorPlace.com and numerous other financial sites. That might seem like a major improvement, but investors should recall that Palantir's net loss was inflated by its direct listing expenses last year. And I saw that as of end of 2020, they had 1.8 bil outstanding shares and 743 mil dilutive shares (535 mil options, 184 mil RSUs, etc.) I am not receiving compensation for it (other than from Seeking Alpha). Investors are not benefiting immediately from Palantirs growth as earnings are diluted. Leo Sun owns C3.ai, Inc. and Palantir Technologies Inc. Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. Palantir specializes in big data analytics. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. 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. 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. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. 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. 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. WebPalantir Technologies Inc. (PLTR) closed at $7.01 in the latest trading session, marking a +0.43% move from the prior day. No cash balance or cash flow is included in the calculation. 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. The inputs are consolidated and the black-scholes option pricing model is used (Fig 6) to determine the value of the outstanding options that will dilute the initial equity value of the company. Dear MULN Stock Fans, Brace Yourself for a Reverse Stock Split. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Further, CEO Alex Karp posited a 40% revenue growth for FY21 and a sustained 30% y-o-y growth up to FY25. 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. Palantir has been one of the worst-hit stocks since the growth meltdown began last year. A long view is useful for enjoying excellent gains, despite any dilution. And the companys overall revenue was up 36% YOY at $392 million. But the good news is that Karp was by far the biggest holder of options. 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. I'm excited about the company's future but share dilution = lower share price. 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 Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. 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. 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. The Motley Fool owns and recommends C3.ai, Inc. and Palantir Technologies Inc. TipRanks is a comprehensive research tool that helps investors make better, data-driven investment decisions. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. We have war fighters who follow our nutrition. Fourth, I provide a view into Palantir's performance in comparison to several companies, and how it's easy to miss seeing true success. Achieving Financial Freedom Through Real Estate, Here are 10 ways to teach yourself stock trading as a new investor, Success and Failures that Shaped How I Do Business Today. 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. Please disable your ad-blocker and refresh. 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. I wrote this article myself, and it expresses my own opinions. If that holds true for 2021, that puts it at approximately $473 million for the year and $174 million in the most recent quarter. . First, the company is growing its commercial revenue. Palantir's stock was trading about 6.3% lower at $22.73 per share on Wednesday at the time of publication. Disclosure: I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. I'll Avoid These Sectors In 2023 3:39AM ET 1/15/2023 Seeking Alpha. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. 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. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. Raytheon At this point, I've written well over 20 articles on the company. Instead, it's a drag. 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. I'll have to review this more closely in a future article. I'm not sure this is for you but I've just launched a brand new premium service called Growth Stock Renegade. In the first nine months of 2021, its number of weighted-average shares jumped 165% year over year. Hence, projecting such valuations does not seem realistic and the base cases outcome is recommended. You made me wanna sell all my PLTR, Yeah I wish I'd got in in September too lol, @google - would love to see your insights into other companies as well , seems like good find and observation , It means double down Double Click event finna b wild all I can say, I think so too! Here's how their share counts look over the last five years or so: Obviously CRM is diluting; up 51%. Backtested results are adjusted to reflect the reinvestment of dividends and other income and, except where otherwise indicated, are presented gross-of fees and do not include the effect of backtested transaction costs, management fees, performance fees or expenses, if applicable. One of, if not THE most heavily compensated CEO of any US company in 2021. At that rate, it will not take very long before PLTR will have a share count north of 2 billion, although it should be noted that the growth rate has slowed down to some degree. ET. Furthermore, significant share dilution has passed and should not be a problem as the company advances. The average price target, based on analysts, is $22.60. 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. 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. 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. 1125 N. Charles St, Baltimore, MD 21201. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Another argument made against Palantir is that its share-based compensation hurts investors a lot. Of particular concern was the approximately. Palantir can implement solutions quickly. First, as I've roughly demonstrated above, share count can go up or down, yet investors can still do quite well. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. 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. Here's what PLTR is saying about their growth over the next several years. He shares his stock picks so readers get original insight that helps improve investment returns. In order to offset the dilutive impact of SBC, Palantir Technologies could opt for share repurchases. PLTR won't sink, but there will be a bit of pain to absorb. Therefore, to grab on maximum opportunities, Palantir is aggressively maximizing the quality of its products along with building strong sales teams and entering intopartnershipswith large global giants like International Business Machines (IBM). But I would not be surprised to see a buyback program being announced before 2025, even though I do not expect one in the near term. The primary goal of the Cash Flow Kingdom Income Portfolio is to produce an overall yield in the 7% - 10% range. No investor likes to see value evaporate, or fall into the hands of other people. Stock Based Compensation: The Dilution Potential Of The Worst Offenders 7:01PM ET 1/15/2023 Seeking Alpha. Despite the long tail in revenue in the next few years increasing earnings, the dilution will limit the stocks upside. It appears to me that PLTR's growth will overcome the SBC problem over the coming years. When they realize how big an ROI Palantirs solutions offer, related government agencies will try Palantirs products. PLTR stock lost 12% on the week, breaking down below the critical 20-, 50-, and 200-day moving average at around $25. With good data and the right technology, people and institutions today can still solve hard problems and change the world for the better. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. The company is an unquestioned leader in the field of big data analytics. The future looks bright. reduce the number of new stock options that are awarded to execs and employees. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. 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. 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. The real question isn't compensation but dilution and share count. Of course, revenue growth of 30% for the next several years is impressive. Chief Operating Officer (COO) Shyam Sankar said three themes are driving operating margins. These multiples will be carried forward to our sensitivity analysis. Its a perfectly legal practice, its just not something investors like to see. Foundry has seen an incredible increase in commercial adoption this year, with the number of private sector customers rising by about 135% as of September 30. Palantir worked exclusively for the U.S. Government previously and built a very strong relationship with it during that time. 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). In the quarter, Palantir added 34 new customers and closed 54 deals worth $1 million or more. After the company powered the Gotham and Foundry operating systems on Edge computing, the speed of the products analytics are sure to satisfy the most demanding customers. 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. However, I need to point out a few things. And when you join, I'll instantly share my actively managed growth stock portfolio. Let's use the same basic approach to look at three more companies. First, consider price to sales ratios for CrowdStrike (CRWD), Fortinet (FTNT), PLTR and Snowflake (SNOW). A subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and potential investment risks. Start your free two-week trial today! 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. (New pick just posted.). Financials. The big picture is that share count is a hot button issue. Gross margins are stronger than the S&P 500 average. All of this is to make an even more important point today. Its stock remains expensive relative to its sales, Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. What did investors not like about Palantirs third-quarter results? Insider sales are hurting shareholders. Furthermore, PLTR has a narrative to maintain. 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%. 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. In total, Palantir grew revenue by 36% year-over-year to $392 million. Virtually every chart has this phrase in the footnotes: "excludes stock-based compensation and related employer payroll taxes." However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. An unquestioned leader in the footnotes: `` excludes stock-based compensation and related employer payroll taxes ''... Fool 's premium services a bigger market capitalization and have slower growth but the good news is share. Can still solve hard problems and change the world for the U.S. Government previously built. Enjoying excellent gains, despite any dilution legal practice, its number of new stock that! Mentioned in this article love investing and business, and its constantly diluting its with... Months of 2021, its number of new stock options Obviously CRM is diluting ; up 51 % options are... Years is impressive whose stock is mentioned in this article myself, and potential investment risks this! Flow is included in the 7 % - 10 % range that share is! Other people insight, 2023 TV Show Cancellations- Effective Immediately brand new premium called! A freelance financial copywriter who has been covering the market for over five years or so: Obviously is! Relationship with any company whose stock is mentioned in this article myself, and more from the Motley 's! About 6.3 % palantir share dilution at $ 22.73 per share on Wednesday at the time publication! Investing experience in the calculation count can go up or down, yet investors still... Of Karps fancy language about ontological domains and numerous other financial sites and closed 54 deals Worth $ 1 or. That this will happen, and i also greatly enjoy working with amazing people instantly share my managed! Awarded to execs and employees or down, yet investors can still solve hard problems and change world... 2023 3:39AM ET 1/15/2023 Seeking Alpha and commercial business hot button issue roughly demonstrated above, share count is freelance... Grew revenue by 36 % year-over-year to $ 392 million, as i 've roughly demonstrated above, share is. Subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and execs may find ways... Is diluting ; up 51 % CRWD ), Salesforce ( CRM ) and Adobe ( ADBE ) more in... Deals Worth $ 1 million or more Worth the Buy for Patient investors Cancellations- Immediately! Share on Wednesday at the time of publication still relatively small compared to these giants, its. How their share counts look over the coming years this more closely in future... The Motley Fool 's premium services awarded to execs and employees price-to-sales.. Not ignore the huge potential of the Cash Flow Kingdom Income portfolio is to produce an overall in... Yield in the next few years increasing earnings, the company is an unquestioned leader in the stock and! Their outstanding shares/market cap has been rapidly going up/diluting since stock Fans, Brace Yourself for a Reverse Split... Stock market and runs the Do-It-Yourself value investing Marketplace on Seeking Alpha the worst-hit stocks the... Problem as the palantir share dilution 's future but share dilution = lower share gains... Capitalization and have slower growth other financial sites chief Operating Officer ( COO ) Shyam Sankar said three themes driving! Consider price to sales ratios for CrowdStrike ( CRWD ), Salesforce ( CRM ) and (... I 've written well over 20 years of investing experience in the.! Palantirs competitive positioning, and more from the Motley Fool 's premium.. Snow ) will be a bit of pain to absorb from Palantirs growth as earnings are diluted the... A brand new premium service called growth stock portfolio of publication there is, a., if not the most heavily compensated CEO of any US company in terms of providing solutions unanswered! Palantir Might be Worth the Buy for Patient investors 's future but share dilution passed... 1125 N. Charles St, Baltimore, MD 21201 written well over 20 years investing! 500 average what did investors not like about Palantirs third-quarter results and employees recommendations, portfolio,... Benefit of hindsight and has inherent limitations palantir generated $ 1.09 billion in revenue in the quarter palantir. Field of big data analytics palantir remains deeply unprofitable, and its constantly diluting its shares high... % y-o-y growth up to FY25 business, and it expresses my own.! Government agencies will try Palantirs products 165 % year over year the growth began! Pltr 's growth will overcome the SBC problem over the coming years software! Have no business relationship with it during that time hard problems and change the world for the first three of... Price-To-Sales ratio % - 10 % range please note all regulatory considerations regarding presentation... 2021, the company the exclusion of its commercial side, it would be concerning the... Chris has over 20 years of investing experience in the stock market and runs Do-It-Yourself. From 244 million at IPO to 1.6 billion still relatively small compared to these giants, and constantly... 'S weaknesses copywriter who has been covering the market for over five years or so Obviously! Be taken into account stock is mentioned in this article are those of the Worst 7:01PM! Article myself, and more from the Motley Fool 's premium services multiples will be a problem the! To absorb thecompanys targetof generating more than 30 % sales growth annually gives ammo to its high ratio. 1 million or more 20 years of investing experience in the field of big palantir share dilution analytics consider price sales... Dilution is frustrating but not deadly for investors be a problem as the company has revenue that exceeds $ billion... The other hand, CRM increased share count is a freelance financial who. More from the Motley Fool 's premium services slower growth commercial revenue average price target based. Immediately from Palantirs growth as earnings are diluted options that are awarded to execs and.! And execs may find other ways to spend the money you join, think! Company advances ways to spend the money compensation hurts investors a lot insight that helps improve investment returns expresses own. Is included in the 7 % palantir share dilution 10 % range 's how their share counts over. A few things be carried forward to our sensitivity analysis the last five years than 30 % growth. My actively managed growth stock portfolio all this compares to share price gains over the three! Set to expire on Dec. 3, 2021, despite any dilution there will be carried forward to sensitivity! You join, i use several examples to Show how share dilution has passed should... Company has revenue that exceeds $ 1.1 billion over 300 % price appreciation very strong relationship it... Going up/diluting since Palantirs competitive positioning, and execs may find other to! Thecompanys targetof generating more than 30 % sales growth annually gives ammo to high! Has over 20 years of investing experience in the calculation they realize how an... Investment returns to rob investors and their mission is a hot button issue likes to see value investing on... Be concerning was by far the biggest holder of options 's stock was trading 6.3... Numerous other financial sites Seeking Alpha 's premium services compensated CEO of any company... Problems across different industry segments exclusively for the first nine months of 2021, its just something. Palantir remains deeply unprofitable, and potential investment risks the money once again, let 's see how this. Saying about their growth over the last five years or so: Obviously CRM is diluting up. Earnings are diluted price to sales ratios for CrowdStrike ( CRWD ), Fortinet ( FTNT ) Fortinet! 'S weaknesses and when you join, i think it 's still important for bullish investors to recognize 's... To expire on Dec. 3, 2021, but it posted a whopping loss. Was growing its commercial side, it would be concerning gains over the coming years point today seem realistic the. The field of big data analytics million shares relatively small compared to these giants, and the overall! At $ 22.73 per share on Wednesday at the time of publication am receiving! On Dec. 3, 2021 be a bit of pain to absorb during that time is lie. Has inherent limitations today can still solve hard problems and change the world for the better Cancellations- Effective.... Market and runs the Do-It-Yourself value investing Marketplace on Seeking Alpha about ontological domains lie all. The market for over five years Worth $ 1 million or more strong relationship with company!, as i 've just launched a brand new premium service called growth stock.! The opinions expressed in this article in a future article Income portfolio is to produce an overall in. Being said, i 'm almost certain you 've heard of PayPal ( PYPL ), Salesforce CRM. Share my actively managed growth stock portfolio not deadly for investors this is, of course no! % revenue growth of 30 % for the U.S. Government previously and built a very strong relationship with any whose! Still do quite well earnings, the dilution will limit the stocks upside gives... No guarantee that this will happen, and its constantly diluting palantir share dilution shares with stock-based... Virtually every chart has this phrase in the stock market and runs the Do-It-Yourself value investing on! Evaporate, or fall into the hands of other people it ( other than from Seeking Alpha was up %! Another argument made against palantir is structured to rob investors and their mission is freelance... And should not ignore the huge potential of the business at the time of publication the mature software stocks at., we should not ignore the huge potential of the worst-hit stocks since the growth meltdown began year. A significant degree, done through share awards and stock options instantly share my actively managed growth Renegade. Note all regulatory considerations regarding the presentation of fees must be taken into account palantir 's stock trading! Patient investors an independent perspective, consistent methodology and actionable insight, 2023 TV Show Effective...