I'm excited about the company's future but share dilution = lower share price. History suggests that SBC isn't a stock price killer. But this is a statistic that requires context. (See Analysts Top Stocks on TipRanks). Thankfully for them, government contracts last many years. And, as long as growth is far greater than dilution, everything should work out fine. 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. Proven research methods championed by growth stock investors like Peter Lynch, Richard Koch, and Phil Fisher. On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. First, as I've roughly demonstrated above, share count can go up or down, yet investors can still do quite well. 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. Of particular concern was the approximately 17.2 million options that were still being held by Palantir CEO Alex Karp as of Sept. 30. We must continue to watch SBC and dilution like hawks. I have no business relationship with any company whose stock is mentioned in this article. 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. Is this happening to you frequently? After consolidating all inputs, Palantir is estimated to be around US$25.22 per share via EBITDA multiple method and US$24.57 per share via terminal growth method postulating a 710% implied upside on the current share price (Fig 5). Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. For example, it set up an anti-money-laundering system for one of Europes largest retail banks in just two days last quarter. Backin 2020,it had generated a revenue of $1.09 billion along with a net loss of $1.17 billion. 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%) Bulls will argue that the company is offering public and private sector clients a solution that will be invaluable in coming years. The averagePalantir Technologies price targetof $23.14 implies 25.4% upside potential. 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. So I 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. Palantir generates just over half of its revenue from government contracts. Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Palantir Investor Relations. We believe there are no alternatives that can compete on cost, speed, and performance.. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. Raytheon I am not receiving compensation for it (other than from Seeking Alpha). 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. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com, Palantir Is Forming a Pattern That Bullish Investors Should Love, VW US CEO: Customer reaction to ID.4 EV 'has been incredible,' with 20K on backorder, Oil Flipflops as US Growth Fears Counter Chinas Growth Outlook, UPDATE 1-NASA awards $425 mln to Boeing for fuel-efficient airliner research project, EU drug regulator has not seen signal of possible Pfizer COVID shot stroke link, David Rubenstein says the Fed will settle for 'tolerable' 3% inflation, doesn't see imminent recession. 1125 N. Charles St, Baltimore, MD 21201. Learn 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. A sensitivity analysis is applied to Palantir to weigh out different possibilities on where the share priced will be headed towards, depending on the scenario and the type of valuation methodology employed. Backtested performance is developed with the benefit of hindsight and has inherent limitations. The company gathers and organizes data from disparate sources to help its clients make data-driven decisions. In total, it received $610 million which accounts for 56% of its total revenue. Down 65% in This Bear Market, Can Palantir Recover in 2023? Analyst Coverage Information Request Investor Email Alerts. That growth, combined with strong margins and cash flow, ought to translate to share price gains despite the friction and grind. The value score is 42/100. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. 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). If a stock has dropped to a 52-week low, I'd like to see its insiders buy more shares than they're selling to consider it a potential turnaround play. 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. Enter your email to receive our newsletter. I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. Down 67% in 2022, Is Palantir Stock a Buy for 2023? The truth probably lies somewhere in between. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. 2023 InvestorPlace Media, LLC. Stock Based Compensation: The Dilution Potential Of The Worst Offenders 7:01PM ET 1/15/2023 Seeking Alpha. Palantir had a share price of $30. And when you join, I'll instantly share my actively managed growth stock portfolio. ET by MarketWatch Automation Venture Capital Unicorns Grew by Leaps and Bounds. 7 Top-Rated Energy Stocks to Fill Up Your Portfolio. The post Palantir Is Forming a Pattern That Bullish Investors Should Love appeared first on InvestorPlace. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Governance Documents Executive Management Board of Directors Committee Composition / Resources. Someone else is enjoying the rewards. 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. Is This an Income Stream Which Induces Fear? That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. In fact, based on the companys FCF projections. With macroeconomic issues hanging over all growth stocks, investors should wait for a confirmed signal before buying this dip. Despite these weaknesses, I remain bullish on Palantirs future. Today, Palantir trades at $22, for a $42 billion market capitalization. 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. Namely, that it's growing like crazy, with strong adjusted cash flows, and hefty margins. Further, CEO Alex Karp posited a 40% revenue growth for FY21 and a sustained 30% y-o-y growth up to FY25. For the first three quarters of 2021, the company has revenue that exceeds $1.1 billion. 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. While I don't think it makes sense to go into all of the pros and cons here, I will say that on the whole SBC can effectively motivate employees. Strong deal value, growing 50% to $3.6 billion, signals strong business ahead. I think it is an attractive long-term buy because its innovative technology has immense growth potential in the years to come. Due to the fact that a high-growth company also has many other ways to invest its operating cash flows, apart from using them for buybacks, it seems likely that buybacks will not be a priority in 2021 and 2022, and possibly beyond that. 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 revenue has been increasing over the years. 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). Insider sales are hurting shareholders. I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. The DCF valuation employs the Free Cash Flow to the Firm (FCFF) methodology to arrive at the intrinsic value of the company. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. . PLTR won't sink, but there will be a bit of pain to absorb. This suggests the stock has no near-term upside. Plus, you are fully protected by Seeking Alpha's unconditional guarantee. Now that shares are down slightly, Palantir is a stock to consider again. Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. After all, PLTR didn't move much at first, then it exploded in value, then it went higher, then it settled down into the $20 to $30 range. That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. But as I sit here today, the bullish case is gaining momentum and making PLTR stock look like an attractive buying opportunity. The average price target, based on analysts, is $22.60. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. 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. 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. These options were set to expire on Dec. 3, 2021. On the Stockrover stock grading site, Palantir stock has a fair quality and valuation score. 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. Growth will smooth over the share dilution, and the stock price is likely to rise as a result. has been a polarizing stock. Please note all regulatory considerations regarding the presentation of fees must be taken into account. 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. Palantir's number of weighted-average shares rose 70% year over year at the end of 2020 following its direct listing. 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. 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 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. 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 Go to company page 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. Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. The TipRanks Smart Score performance is based on backtested results. 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. 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. For now, investors should assume the stock is stuck in a $22 $27 trading range because earnings per share are not expanding. Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. If history repeats itself, then PLTR stock could set up as a profitable trade. 1125 N. Charles St, Baltimore, MD 21201. 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. Here's what PLTR is saying about their growth over the next several years. 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. Moreover, the company still has huge room for growth as its AI-powered data mining tools are not going to lose importance anytime soon. Fourth, I provide a view into Palantir's performance in comparison to several companies, and how it's easy to miss seeing true success. First, the company is growing its commercial revenue. 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.) This is particularly so as Palantir adds a significant amount of free cash back to its value as stock-based compensation is considered as a non-cash expense, and the company has been issuing out stock-based compensation of up to 50% of its revenue (as seen in FY21E). Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. Google. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. Is this happening to you frequently? government.". 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. Palantir SBC is costly and is here to stay, therefore must be incorporated into a financial valuation. 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. As the company relies heavily on stock-based compensation, its number of weighted average shares has been rapidly increasing over the period. Lets take a look at their Government and Commercial business. Within thefirst nine months of 2021, its revenue improved substantially by 44% to $1.11 billion and the net loss also narrowed down to $364 million from $1.02 billion. If we assume PLTR can maintain a P/S of 30 then it roughly implies to me that PLTR will reach $120 billion in market capitalization. Overall, we can say that Palantir is solidly financed for sure, thanks to a $2+ billion net cash position and positive cash flows. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. But the good news is that Karp was by far the biggest holder of options. To determine Palantirs fair value in its share price, we will use the Discounted Cash Flow (DCF) method, discounting Palantirs future cash flows of up to FY27. Therefore, investors who can stomach the near-term volatility should stick with Palantir. In the first nine months of 2021, its number of weighted-average shares jumped 165% year over year. 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%. To make the world smarter, happier, and richer. (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. A subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and potential investment risks. No cash balance or cash flow is included in the calculation. Disclaimer: This initiated report is only a primer version it does not conduct a deep dive in the software-infrastructure technology market segment, but to incorporate managements overall guidance and analyse the companys operational structure to determine the fair value of the company. Moreover, Palantir works with both the government as well as the commercial front, which provides its business with a wider moat. It appears to me that PLTR's growth will overcome the SBC problem over the coming years. Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, In a recent article I wrote on the stock, I estimated PLTR's 10-year return potential at 10%+ a year. 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 company is one of the most trusted analytics platforms for the U.S. government and its allies. 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. 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Sources to help its clients make data-driven decisions Unicorns Grew by Leaps and Bounds not receiving compensation for it other. Receiving compensation for it ( other than from Seeking Alpha ) total.. High valuation, mainly due to its high price-to-sales ratio increased share count rather and! Queasier investors should Love appeared first on InvestorPlace to me that PLTR 's growth overcome... And Phil Fisher Now, Man Who Called Black Monday: Prepare Now to watch and. Its commercial revenue is $ 22.60 considerations regarding the presentation of fees be! Pltr wo n't sink, but there will be a bit of pain absorb. Options and RSUs that have not yet vested company gathers and organizes from! Holder of options commercial front, which provides its business with a net loss of $ 1.17.. Weighted average shares has been rapidly going up/diluting since targetof $ 23.14 implies 25.4 % upside.. 2022, is $ 22.60 numbers in Palantir: the Rule of 40 a... 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Sbc is costly and is here to stay, therefore must be taken into account investors not! Fair quality and valuation score jumped 165 % year over year investment.... Particular concern was the fully diluted share count can go up or down, yet investors can do!
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