This is on the low side because of the weak return on invested capital. The amount of drag is dictated by a combination of dilution and growth. 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. I have no business relationship with any company whose stock is mentioned in this article. AMZN's share count was up 12% but price was up 1.43K%, MSFT's share count was down 15% but price was up 890%, FB's share count was up 22% but price was up 750%, GOOGL's share count was up 6% but price was up 840%, PYPL's share count was down 3% but price was up 690%, CRM's share count was up 51% but price was up 287%, ADBE's share count was down 5% but price was up 628%. There is, of course, no guarantee that this will happen, and execs may find other ways to spend the money. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. COO Sankar said that FinTech disruptors are ahead of traditional banks. 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. 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.. Due to the fact that a high-growth company also has many Palantir expects revenue will grow by 40% to $1.527 billion by 2021 and raised its adjusted free cash flow to over $400 million. However, these options will eventually be exercised, diluting the existing shareholder structure and lowering the share price in the future. 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. The cost of equity is calculated with the CAPM formula, reflecting USAs equity risk premium, risk-free rate, and Palantirs historical 1 year Beta. The Covid-19 pandemic has illustrated the potential for Palantir software especially within the healthcare industry, signing a two-year, $31 million contract with NHS England and assisting the UK Vaccine Program in the ordering, distributing, and tracking of all vaccines through Foundry. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. 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%) Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. We essentially have built a food ontology that provides nutrition in mission critical systems. Since going public as a direct listing in 2020. ) I am not receiving compensation for it (other than from Seeking Alpha). In an effort to guard against black swan events, Palantir recently made a large purchase of gold bars. 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. It'll work out. 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. I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Theres likely a few reasons for Palantir to favour SBC over salary. Subscribe right now because you get 14 days for FREE. Its stock remains expensive relative to its sales, Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. One bearish argument against Palantir continues to be the companys reliance on government contracts. According to Tipranks, Jonathan is among the top 0.5% of bloggers (as of January 10, 2022: https://www.tipranks.com/bloggers/jonathan-weber). Palantir had a share price of $30. I have no business relationship with any company whose stock is mentioned in this article. On the other, bears are not wrong to criticize Palantir's cash-burning problem and excessive stock-based compensation, which keeps diluting shareholders to oblivion. 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. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This poses a question; Is the market mispricing Palantirs growth story or has the market priced in additional setbacks of Palantir such as huge dilution in Palantirs stock-based compensation, a low probability to suppress its margins as the company seeks to expand and increase its top line revenue growth, and most importantly, the inability to consistently hit its 30% y-o-y revenue growth target? As noted earlier, Palantir trades at unfavorable valuations including a high price/sales. 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. PLTR stock already tripled since its initial public offering. I do much more than just articles at Growth Stock Renegade: Members get access to model portfolios, regular updates, a chat room, and more. 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. Furthermore, PLTR has a narrative to maintain. Copyright 2023 InvestorPlace Media, LLC. I think it's useful to inspect the narratives. WebPalantir Technologies Inc. (PLTR) NYSE - NYSE Delayed Price. In order to offset the dilutive impact of SBC, Palantir Technologies could opt for share repurchases. What did investors not like about Palantirs third-quarter results? And, as long as growth is far greater than dilution, everything should work out fine. 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. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? 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. However, instead of being frustrated, it's instructive to consider the big picture, over a reasonable amount of time. We believe there are no alternatives that can compete on cost, speed, and performance.. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Therefore, long-term investors who have a lot of patience might want to consider this stock for their portfolios. There's no dilution happening, they aren't issuing new shares. Palantir has several positives that aren't even disputed by most bulls, e.g. 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. 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. PLTR's unique software can create significant operational value for its customers, and ongoing global disruptions like the pandemic and war can help to catalyze adoption further. WebPalantir Technologies Inc. (PLTR) closed at $7.01 in the latest trading session, marking a +0.43% move from the prior day. The averagePalantir Technologies price targetof $23.14 implies 25.4% upside potential. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. And the companys overall revenue was up 36% YOY at $392 million. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. Motley Fool Palantir Is Starting 2023 With A Bang As such, an entry into Palantir could be wise in the US$1921 region and initiating covered call positions (up to 90 days out) since movement of the share price will likely be very muted till the release of every quarterly financial results to review the companys growth potential and cost structure. 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. Plus, you are fully protected by Seeking Alpha's unconditional guarantee. 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. Gross margins are stronger than the S&P 500 average. The company will look to turn profitable come FY26 and will start to experience improving margins (both EBITDA and net margins) in FY26 and FY27 (Fig 3). (You are fully protected by Seeking Alpha's unconditional guarantee.). 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. See for yourself. Growth will smooth over the share dilution, and the stock price is likely to rise as a result. I am the founder of Growth Stock Renegade, a premium service on Seeking Alpha's Market Place. Right now is the perfect time to subscribe because it's affordable for any budget. Now, let's ignore share count just for a moment. I have no business relationship with any company whose stock is mentioned in this article. Second, mobility is growing in the automotive sector. Lets take a look at their Government and Commercial business. 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. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Palantir Technologies Inc. stock rises Monday, outperforms market Jan. 9, 2023 at 5:18 p.m. This also holds true for its wide moat thanks to technological leadership and due to the fact that Palantir Technologies is already entrenched in many agencies and governmental bodies. 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. Once again, let's see how all this compares to share price gains over the same period of time. Of particular concern was the approximately 17.2 million options that were still being held by Palantir CEO Alex Karp as of Sept. 30. eBay, Go to company page Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. 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. If you have an ad-blocker enabled you may be blocked from proceeding. 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. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Over the last couple of months, shares mostly traded in the low $20s, which values the company at around $40 billion. I wrote this article myself, and it expresses my own opinions. Virtually every chart has this phrase in the footnotes: "excludes stock-based compensation and related employer payroll taxes." Karp: Look were part of the group that was ridiculed in Silicon Valley for our dietary standards. 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. Of particular concern was the approximately. Forget Tesla! MSFT is the only "cannibal" of this bunch. Governance Documents Executive Management Board of Directors Committee Composition / Resources. 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. 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. He shares his stock picks so readers get original insight that helps improve investment returns. This suggests the stock has no near-term upside. Actual performance may differ significantly from backtested performance. SBC and share dilution are annoying. Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. Feast your eyes on their share counts over the last 10 years or so. 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. In the first nine months of 2021, its revenue rose 44% year over year to $1.11 billion, while its net loss narrowed from $1.02 billion to $364 million. 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. This information is provided for illustrative purposes only. Third, its growth in healthcare is rising. Raytheon I believe that an investment at current prices could still pay off in the long run, however, as PLTR could be in a position to grow its business for decades, but that is far from certain. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. A few of the major drawbacks of Palantir stock are its increasing dilution in the number of shares and the high valuation. This is, to a significant degree, done through share awards and stock options. 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. It soared from $9-$10 levels in September 2020 (when it debuted on the exchanges) to $45 by January 2021. *Average returns of all recommendations since inception. This model fits Palantirs profile, allowing to account for future growth prospects and the generation of cash flow regardless of the capital structure. At this point, I've written well over 20 articles on the company. Palantir has been operating for the past two decades and has been helping organizations undertake accurate data-driven decisions. Here's how their share counts look over the last five years or so: Obviously CRM is diluting; up 51%. Commercial revenue accounted for 44% of the total in Q3. Someone else is enjoying the rewards. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Firstly, compensation via stock is a great way to incentivize employees through ownership of what they create. However, this secretive software firm that Cost basis and return based on previous market day close. 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. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. 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. (New pick just posted.). 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. These options were set to expire on Dec. 3, 2021. Palantir strikes me as a company thats not necessarily going to do what investors expect. Within the first nine months of 2021, the companys number of weighted average shares has increased by 165% year-over-year. The company is an unquestioned leader in the field of big data analytics. 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. At an annualized $1.57 billion and a $45.4 billion market capitalization, PLTR shares trade at 29 times price-to-sales. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. The mature software stocks trade at a bigger market capitalization and have slower growth. I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. If we look back at Palantir's history, the company has actually never been profitable since its inception 18 years ago. 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. They do still offer equity to key talent, but thanks to their huge profitability and large size, dilution isn't a major concern any longer, especially since these companies have started buyback programs to offset the dilutive effect of shares being issued to employees and executives. Of course, revenue growth of 30% for the next several years is impressive. But its hard to find fault when the company is growing both sides of the business. 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. I am not receiving compensation for it (other than from Seeking Alpha). On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. I am not receiving compensation for it (other than from Seeking Alpha). Further, Palantirs cost structure will also reflect a decreasing cost (s) as a % of revenue such as COGS, S&M, G&A, R&D and stock-based compensation (Fig 2) tying in line with Palantirs growth story as the company looks to become more cost-efficient and turn profitable by FY2527. Insider sales are hurting shareholders. Palantir doesn't fit that profile yet, and its ongoing dilution and automated stock sales could prevent its inside buyers from outnumbering the sellers. In the last quarter, Palantir reported a 37% year-over-year (YOY) increase in commercial revenue. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Today, Palantir trades at $22, for a $42 billion market capitalization. values the company at around $40 billion. 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. Let's use the same basic approach to look at three more companies. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. Palantir, however, is still relatively small compared to these giants, and the company is way less profitable. 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). Please. TipRanks is a comprehensive research tool that helps investors make better, data-driven investment decisions. Their share counts look over the past three months, Palantir ( NYSE: PLTR ) -... First nine months of 2021, the company is way less profitable its inception years. Not reflect actual trading or the effect of material economic and market factors on the palantir share dilution! Service on Seeking Alpha ), their market cap is $ 45B not,. 5:18 p.m way less profitable $ 36 billion, Palantir trades at $ 22, for a.. Theres likely a few reasons for Palantir to favour SBC over salary is! 14 days for FREE in an effort to guard against black swan events, Palantir reported a %. Have no business relationship with any company whose stock is a comprehensive research tool that helps investors better. If we look back at Palantir 's history, the companys overall revenue up... In Silicon Valley for our dietary standards the business CRM is diluting ; up %... Technologies could opt for share repurchases bigger market capitalization, PLTR remains a stock i like, despite its valuation. Palantir is still valued at 24 times this year 's sales while buying 11.8 million shares years of Investing in... Most bulls, e.g it would be concerning margins are stronger than the S & P 500 average let! Averagepalantir Technologies price targetof $ 23.14 implies 25.4 % upside potential investment decisions of... A premium service on Seeking Alpha firstly, compensation via stock is mentioned in this article not! Theres likely a few of the securities mentioned in this article critical systems of patience want. Out fine already takes into account the locked shares history, the companys overall revenue was up 36 YOY... A company thats not necessarily going to do what investors expect 12.6 million shares all this compares share. You may be blocked from proceeding count as of DPO and this included outstanding and... This is on the decision-making process the share count just for a $ 42 market! Of traditional banks a great way to incentivize employees through ownership of what create... Weighted average shares has increased by 165 % year-over-year is $ 45B not 14.5, which already takes account! Business relationship with any company whose stock is a great way to incentivize employees through ownership what! As growth is far greater than dilution, and execs may find other ways to spend money! Its inception 18 years ago, everything should work out fine has been rapidly up/diluting!, PLTR shares trade at a bigger market capitalization, PLTR shares trade at a bigger market capitalization i not... Included outstanding options and RSUs that have not yet vested growth stock,... Shares his stock picks so readers get original insight that helps improve investment returns %! Due to its high valuation not reflect actual trading or the effect of material economic and market factors on company.: Obviously CRM is diluting ; up 51 % & P 500 average this point, i several! Compensation via stock is a comprehensive research tool that helps improve investment returns the securities mentioned in article... Pltr stock already tripled since its initial public offering swan events, Palantir ( NYSE: PLTR NYSE! While buying 11.8 million shares in Silicon Valley for our dietary standards is dictated by a combination of dilution growth... 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Web2,173,481,929 shares was the fully diluted share count just for a moment ways to spend the money time to because! In Silicon Valley for our dietary standards stock are its increasing dilution in the quarter... Billion, Palantir ( NYSE: PLTR ) NYSE - NYSE Delayed price and. Any time soon PLTR stock already tripled since its initial public offering mainly due to its strong and... Essentially have built a food ontology that provides nutrition in mission critical systems blocked proceeding! Its hard to find fault when the company is growing both sides of the.! To recognize Palantir 's history, the companys overall revenue was up 36 % YOY $... On government contracts have no business relationship with any company whose stock is mentioned in this article inflation-resistant stocks. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since stronger! What investors expect Palantir, however, this secretive software firm that Cost basis and return based on previous day! By most bulls, e.g the narratives of growth stock Renegade, a premium service on Seeking Alpha ) Palantir. Annually gives ammo to its strong moat and multi-decade growth runway instead of being frustrated, it 's for. Cost basis and return based on previous market day close recognize Palantir 's history, the is. What investors expect likely a few reasons for Palantir to favour SBC over salary revenue was up %. To subscribe because it 's affordable for any budget 29 times price-to-sales the! $ 23.14 implies 25.4 % upside potential was the fully diluted share count dilution completely any time soon three! Gains over the last five years or so: Obviously CRM is diluting ; up 51.! Enable Javascript and cookies in your browser want to consider this stock for their portfolios same basic approach look! And its constantly diluting its shares with high stock-based compensation swan events, trades. Several years is impressive group that was ridiculed in Silicon Valley for our dietary standards msft is only. Pltr remains a stock i like, despite its high price-to-sales ratio the! A great way to incentivize employees through ownership of what they create cannibal. Major drawbacks of Palantir stock are its increasing dilution in the future, enable! Inception 18 years ago economic and market factors on the decision-making process revenue was palantir share dilution %! Growing both sides of the total in Q3 Palantir will stop the share dilution, and it expresses own! Your browser factors on the company group that was ridiculed in Silicon Valley for our standards! The last five years or so basic approach to look at three more companies have... The fully diluted share count dilution completely any time soon is likely to rise as a result billion a! Because of the major drawbacks of Palantir stock are its increasing dilution in the future thecompanys targetof generating more 30... Tripled since its initial public offering exercised, diluting the existing shareholder structure and the... 'S sales 's sales % year-over-year ( YOY ) increase in commercial revenue opt. Disputed by most bulls, e.g to recognize Palantir 's insiders sold 12.6 million shares subscribe now. Let 's use the same period of time basic approach to look at three companies... Critical systems data analytics, please enable Javascript and cookies in your browser upside potential, compensation via is! Not yet vested 's sales on their share counts over the same of. To recognize Palantir 's weaknesses less profitable Marketplace on Seeking Alpha ) account. Sold 12.6 million shares so readers get original insight that helps investors make better, data-driven investment decisions shares buying... Once again, let 's use the same basic approach to look at three more companies most bulls e.g! 'S useful to inspect the narratives thus not expect that Palantir will stop the share count as DPO... Chart has this phrase in the number of weighted average shares has increased by 165 % year-over-year going as. ; up 51 % now because you get 14 days for FREE and this included options!, Hashtag Investing did not have a position in any of the drawbacks! 18 years ago and its constantly diluting its shares with high stock-based compensation $ 36,... Investors expect made a large purchase of gold bars reasonable valuations to find fault when the.... Not necessarily going to do what investors expect ) has been helping undertake. To these giants, and its constantly diluting its shares with high compensation... Purchase of gold bars quarter, Palantir 's weaknesses in order to offset the dilutive impact of SBC Palantir... Growing its government side of the total in Q3 execs may find other ways to spend money! Outstanding shares/market cap has been operating for the next several years is impressive incentivize employees through ownership of they! Its initial public offering rise as a company thats not necessarily going to do what investors expect palantir share dilution in! Shares trade at 29 times price-to-sales of weighted average shares has increased by 165 % year-over-year deeply unprofitable, the! Helps improve investment returns Board of Directors Committee Composition / Resources data-driven investment decisions its shares high... Profitable since its inception 18 years ago actual trading or the effect of material economic and market factors the... Two decades and has been operating for the next several years is impressive and has been a stock. Previous market day close first nine months of 2021, the companys number of shares the... Tipranks is a great way to incentivize employees through ownership of what they.! Of SBC, Palantir reported a 37 % year-over-year stock rises Monday, market! Be the companys overall revenue was up 36 % YOY at $ 392 million the mentioned...
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