In FY2020, its revenue grew 47%. The amount of drag is dictated by a combination of dilution and growth. Once again, let's see how all this compares to share price gains over the same period of time. PLTR won't sink, but there will be a bit of pain to absorb. As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. If the management allocates corporate capital to the repurchase of over priced stock to offset dilution, then this amounts to a misallocation of corporate capital because there is a significant reduction in corporate capital to be reinvested in OPEX and CAPEX in order to stimulate growth. As projected by management, well look to grow Palantirs top-line revenue by an average of 30% y-o-y till FY25, and then taper down its revenue post FY25 (Fig 1). Start your free two-week trial today! We must not let PLTR off the hook. Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. Insider sales are hurting shareholders. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. Certain assumptions have been made for modeling purposes and are unlikely to be realized. Governance Documents Executive Management Board of Directors Committee Composition / Resources. Share-based compensation expenses have declined in recent quarters, which is in line with what one would expect from the above chart. Its CEO, for example, received a massive $1.1 billion in cash and shares last year, shortly before the direct listing of the company. Insider sales are hurting shareholders. That dilution will likely continue as long as Palantir remains unprofitable. Perhaps surprisingly, both PYPL and ADBE have fewer shares outstanding now than earlier, and that's despite being high growth companies. has been a polarizing stock. WebPalantir Technologies Inc. (PLTR) NYSE - NYSE Delayed Price. (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. Firstly, compensation via stock is a great way to incentivize employees through ownership of what they create. 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. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. Fair Value is the appropriate price for the shares of a company, based on its earnings and growth rate also interpreted as when P/E Ratio = Growth Rate. 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. Nevertheless, 287% is still quite robust. On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Second, mobility is growing in the automotive sector. Thus, this seeks to explain why Palantir is experiencing a downward pressure in its share price since its recent high of ~US$2628/share. Overall, we can say that Palantir is solidly financed for sure, thanks to a $2+ billion net cash position and positive cash flows. 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. The results reflect performance of a strategy not historically offered to investors and does not represent returns that any investor actually attained. Please. 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. I'll have to review this more closely in a future article. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. Interestingly, share count isn't a concept that is instantly easy to see. Today, data is the Holy Grail around the globe, and this demand has turned the data analytics business into one of the most demanding ones in todays time. Gross margins are stronger than the S&P 500 average. Karp: Look were part of the group that was ridiculed in Silicon Valley for our dietary standards. Buyer Beware! 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. That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. Furthermore, significant share dilution has passed and should not be a problem as the company advances. The information is not intended to be used as the basis of any investment decision by a person or entity. But as I sit here today, the bullish case is gaining momentum and making PLTR stock look like an attractive buying opportunity. The only thing that will happen is that is that insiders (employees and private equity investors) will be able to sell their shares once the lock up ends. I wrote this article myself, and it expresses my own opinions. (You are fully protected by Seeking Alpha's unconditional guarantee.). There has been NO true dilution Chief Operating Officer (COO) Shyam Sankar said three themes are driving operating margins. 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. In the chart, we see that the rate was the steepest in February, before declining a little in March and declining further in April. With good data and the right technology, people and institutions today can still solve hard problems and change the world for the better. It also announced it would accept payment in Bitcoin (CCC:BTC-USD), although according to a company spokeswoman, Palantir has not received any payments in the cryptocurrency. Thanks for pointing this out. Today, Palantir trades at $22, for a $42 billion market capitalization. Subscribe right now because you get 14 days for FREE. One out of eight analysts have given Palantir a Buy rating, three have Hold ratings, and the remaining four have suggested a Sell. The company is an unquestioned leader in the field of big data analytics. 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. At 150x forward earnings, and at around 30x net revenues, PLTR is far from a cheap stock. MSFT is the only "cannibal" of this bunch. I remain bullish. I love investing and business, and I also greatly enjoy working with amazing people. And, it's also a powerful recruiting and retention tool. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >, Tired of arriving late to the Big Returns Party?. 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. Lets take a look at their Government and Commercial business. There's no dilution happening, they aren't issuing new shares. Eng, Go to company page I have also generated over $30 million in online sales through my own business activities, along with several million dollar producing partners and affiliates. 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. 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. Theres likely a few reasons for Palantir to favour SBC over salary. Palantir Investor Relations. The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. 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. Benzinga reports: Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, MSFT. And the companys overall revenue was up 36% YOY at $392 million. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. WebTo give you an idea of how many shares were covered under the 2010 Plan, this is from the S-1 (emphasis mine): As of June 30, 2020, options to purchase 308,905,744 shares of If history repeats itself, then PLTR stock could set up as a profitable trade. TipRanks is a comprehensive research tool that helps investors make better, data-driven investment decisions. This is all very rough, of course. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. Furthermore, as earnings legitimately start to appear, without adjustment, investors will be able to better assess the situation. Upon renewal, the amount may increase. This suggests the stock has no near-term upside. Backin 2020,it had generated a revenue of $1.09 billion along with a net loss of $1.17 billion. Actual performance may differ significantly from backtested performance. In fact, based on the companys FCF projections, InvestorPlace contributor Mark Hake has a price target of $38.81 for Palantir. These contracts accounted for approximately 56% of the companys revenue in the third quarter. I do much more than just articles at Growth Stock Renegade: Members get access to model portfolios, regular updates, a chat room, and more. 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%. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. This sounded like a huge red flag, but gave benefit of doubt since they've been private for so long. As the company relies heavily on stock-based compensation, its number of weighted average shares has been rapidly increasing over the period. (See Analysts Top Stocks on TipRanks). I am not receiving compensation for it (other than from Seeking Alpha). 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. 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. The Upside Potential for SOFI Stock Is Limited. In the Q3 2021 earnings conference call on Nov.9, he said, legacy compliance solutions are often 2 or more decades behind. Hence, projecting such valuations does not seem realistic and the base cases outcome is recommended. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. It is said that back in 2011, the U.S. Army had reportedly used Gotham to track down Osama Bin Laden. 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. We have war fighters who follow our nutrition. Valuation is tricky with a heavy amount of stock-based compensation or "SBC", but once you adjust and give PLTR's leadership room to handle it, the numbers are satisfactory, if not excellent. 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). 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. Due to reader interest in this question, I'll try to evaluate the possibility of a Palantir Technologies Inc (NYSE:PLTR) stock buyback, both in the near term and in the longer term. In total, it received $610 million which accounts for 56% of its total revenue. However, I need to point out a few things. For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. So been balls deep in Palantir since it went public in September. I do much more than just articles at Cash Flow Kingdom: Members get access to model portfolios, regular updates, a chat room, and more. Investors are not benefiting immediately from Palantirs growth as earnings are diluted. Google. Please note all regulatory considerations regarding the presentation of fees must be taken into account. This is the case for any IPO. This is pretty insane, I had no idea. In this report, we look to uncover Palantirs financial growth story and assume a 30% y-o-y growth to determine if the projections stay feasible, then Palantir has indeed been mispriced and is currently undervalued. 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. 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 this point, I've written well over 20 articles on the company. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Analyst Coverage Information Request Investor Email Alerts. Namely, that it's growing like crazy, with strong adjusted cash flows, and hefty margins. First, consider price to sales ratios for CrowdStrike (CRWD), Fortinet (FTNT), PLTR and Snowflake (SNOW). Financials. 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. Making the world smarter, happier, and richer. Copyright 2023 InvestorPlace Media, LLC. In an effort to guard against black swan events, Palantir recently made a large purchase of gold bars. (Cognitive Computing) Certainly, that's a view in the rearview mirror. The stock has a 52-week high of $45 and a 52-week low of $14.40. 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. First, it is seeing more traction with the defense industrial customer. At an annualized $1.57 billion and a $45.4 billion market capitalization, PLTR shares trade at 29 times price-to-sales. For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate., Invest Like a Pro with Unique Data & Simplifed Tools, Mohamed El-Erian Says the Stock Market Rally Could Be Short-Lived; Here Are 2 Strong Buy Dividend Stocks for Stable Cash Return, Boost Your Passive Income; 3 Stocks with 50+ Years of Dividend Growth. Since then, it has fallen to trade at $18-$19 levels. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. 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. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. 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. contributing author for InvestorPlace.com and numerous other financial sites. Palantir's stock was trading about 6.3% lower at $22.73 per share on Wednesday at the time of publication. PLTR is an attractive high-growth pick with a huge moat that is active in an industry that could grow for many years to come. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. 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. Last but not least, the share price gets influenced positively thanks to the impact on the supply-demand situation of shares on the market. Palantir is, I believe, very well positioned from a tech perspective, the company has a wide moat, is well-connected to customers in both the government sector and the private sector, and PLTR is active in an absolute growth market. But the good news is that Karp was by far the biggest holder of options. Nasdaq Is This an Income Stream Which Induces Fear? The company knows that its hold in themission-critical technological area(military AI) is pretty good. I hope to see you inside Growth Stock Renegade. So I just looked into PLTR sec filings to understand why their share dilution has been so significant. Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. 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. All rights reserved. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. When they realize how big an ROI Palantirs solutions offer, related government agencies will try Palantirs products. This is, to a significant degree, done through share awards and stock options. 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%. Palantir specializes in big data analytics. All rights reserved. Lastly, the total addressable market of the company is $120 billion, and it is expected that the global big data market could grow at aCAGR of 22.4%through 2030. One of, if not THE most heavily compensated CEO of any US company in 2021. Still, that valuation comparison is not fair. That's the point. 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. 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. 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. 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. It also announced it would accept payment in. I wrote this article myself, and it expresses my own opinions. Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. History suggests that SBC isn't a stock price killer. Please. (New pick just posted.). 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.. Backtested performance is not an indicator of future actual results. I'll Avoid These Sectors In 2023 3:39AM ET 1/15/2023 Seeking Alpha. quotes delayed at least 15 minutes, all others at least 20 minutes. 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. 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. 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). These options were set to expire on Dec. 3, 2021. 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. I have no business relationship with any company whose stock is mentioned in this article. From Palantirs current financials and its projections at FY21, we can conclude that the companys future growth story for the next 36months is crucial to determine if the stock can experience a surge in price, since its current operating structures in FY21 has experienced a huge improvement with respect to its top line revenue growth. If history repeats itself, then PLTR stock could set up as a profitable trade. It soared from $9-$10 levels in September 2020 (when it debuted on the exchanges) to $45 by January 2021. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. It's still a major thorn in my side. Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. I am an investor, entrepreneur, father, husband, coach and teacher. Stocks tumble, Apple slides as China COVID protests spook investors to start week With macroeconomic issues hanging over all growth stocks, investors should wait for a confirmed signal before buying this dip. Far from a cheap stock active in an effort to guard against black events... Offer, related government agencies will try Palantirs products tech stocks trading more... As the basis of any US company in 2021 the decision-making process itself. 15 minutes, all others at least 20 minutes one would expect from the above chart which is line. Karp: look were part of the business at the time of publication, Hashtag palantir share dilution. Years to come take a look at their government and Commercial business premium services so significant (. 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