palantir share dilution
These contracts accounted for approximately 56% of the companys revenue in the third quarter. Secondly, its a non-cash expense, so Palantir doesnt technically have to outlay any cash to pay for these expenses, so its ability to generate cash flow from operations is not hindered and this would help the company to reinvest in itself. Feast your eyes on their share counts over the last 10 years or so. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. 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. Furthermore, PLTR has a narrative to maintain. Upon renewal, the amount may increase. I appreciate your feedback, comments and questions. Stock Prodigy Who Found NIO at $2 Says Buy THIS Now, Man Who Called Black Monday: Prepare Now.. 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. Turning to Wall Street, PLTR stock has a Moderate Sell consensus rating. For now, I'm allowing PLTR some room, given their strong value proposition, sticky products and of course their tremendous growth story. The Motley Fool has a disclosure policy. Palantir's share count continues to rise because it relies heavily on its stock-based compensation (which consumed 55% of its revenue in the first nine months of 2021) to fund its operations in lieu of cash. Please disable your ad-blocker and refresh. An adjusted free cash flow (FCF) of $119 million in the last quarter and a margin of 30% is hard to ignore. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. 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. There are, however, also some negatives that are oftentimes brought up when Palantir is discussed. Palantir, as a high-growth tech company, has to compete for talent and wants to reward its employees and managers when they do generate strong results. Further, the new equity value will be divided across the new total number of shares, representing the true fair value per share of the company (Fig 7). The information is not intended to be used as the basis of any investment decision by a person or entity. That's why it's often far better to look at it over a period of time. Theres likely a few reasons for Palantir to favour SBC over salary. Second, it's bad but not super bad for PLTR. For example, C3.ai (AI -0.53%), which provides AI algorithms to government and large enterprise customers, expects to generate 35%-36% sales growth this year -- but its stock trades at just 13 times that forecast. Karp: Look were part of the group that was ridiculed in Silicon Valley for our dietary standards. In the last quarter, Palantir reported a 37% year-over-year (YOY) increase in commercial revenue. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Palantir has a strong moat that gives customers an edge. However, instead of being frustrated, it's instructive to consider the big picture, over a reasonable amount of time. The average price target, based on analysts, is $22.60. Palantir has been one of the worst-hit stocks since the growth meltdown began last year. Eng, Go to company page MULN Stock Alert: Does Mullen Have 3,000 Preorders For Its FIVE EV? 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. Does it make it a bad investment? Copyright 2023 InvestorPlace Media, LLC. I suspect you are quite familiar with Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). Copyright It's my #1 issue with PLTR. 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. So while there will likely continue to be some selling in the next few years, investors may have to find something else to object to. Dear MULN Stock Fans, Brace Yourself for a Reverse Stock Split. Since then, it has fallen to trade at $18-$19 levels. Palantir SBC is costly and is here to stay, therefore must be incorporated into a financial valuation. 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. 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). 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. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. 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). First, it is seeing more traction with the defense industrial customer. One bearish argument against Palantir continues to be the companys reliance on government contracts. Third, its growth in healthcare is rising. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. It has a powerful A.I. I looked up other tech stocks' sec filings (SQ, FB, GOOG, etc.) Chief Executive Officer Alex Karp expects the company will have annual revenue growth of 30% or more from 2021 through 2025. 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). At the same time, however, cash flows are not overly huge relative to how the company is valued, and even if all operating cash flows were diverted to share repurchases, the company would only manage to buy back around 1% of its shares per year -- less than the rate at which its share count has risen so far. Analyst Coverage Information Request Investor Email Alerts. 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. Value investors could buy Microsoft (NASDAQ:MSFT) at 14 times sales or Oracle (NYSE:ORCL) at 6.8 times. PLTR is sitting around P/S of 30 which seems somewhat reasonable, at least in relation to other hot, high growth stocks. its strong growth and its great position in its industry. The same was true for many other companies in a similar position, e.g. That growth, combined with strong margins and cash flow, ought to translate to share price gains despite the friction and grind. At this point, I've written well over 20 articles on the company. And, it's also a powerful recruiting and retention tool. Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Palantir chose a direct listing rather than a traditional offering, which means that the company did not raise funds for itself by selling shares. Instead, existing shareholders were able to sell and liquidate their shares on the open market. Here I do see a stronger relationship between share count and price. Buyer Beware! Second, their market cap is $45B not 14.5, which already takes into account the locked shares. 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. 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. 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. This information is provided for illustrative purposes only. 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. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. 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. This is somewhat difficult for some investors to remember. For now, investors should assume the stock is stuck in a $22 $27 trading range because earnings per share are not expanding. 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. 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. Palantir's stock was trading about 6.3% lower at $22.73 per share on Wednesday at the time of publication. 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). 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. contributing author for InvestorPlace.com and numerous other financial sites. InvestorPlace - Stock Market News, Stock Advice & Trading Tips. If history repeats itself, then PLTR stock could set up as a profitable trade. Financial Market Data powered by FinancialContent Services, Inc. All rights reserved. So been balls deep in Palantir since it went public in September. quotes delayed at least 15 minutes, all others at least 20 minutes. 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?. This is AMC / GameStop levels of dilution. Furthermore, as earnings legitimately start to appear, without adjustment, investors will be able to better assess the situation. 5 Hypergrowth Stocks With 10X Potential in 2023. Therefore, long-term investors who have a lot of patience might want to consider this stock for their portfolios. The truth probably lies somewhere in between. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. The future looks bright. 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. And, that's also in line with PLTR's long-term sales view, back from Q4 2020. 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. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Start your free two-week trial today! Nasdaq 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. Go to company page In order to pay for share repurchases one has to pay cash, of course, which is why we should take a look into PLTR's balance sheet and cash flow statement: We see that Palantir has a net cash position of $2.1 billion, not accounting for restricted cash. Warren Buffett spoke to this idea more than 25 years ago: When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases. It is said that back in 2011, the U.S. Army had reportedly used Gotham to track down Osama Bin Laden. I think it's useful to inspect the narratives. Despite a slight pessimistic sentiment towards Palantirs valuation, there is a possibility that the company may experience >30% y-o-y revenue growth (Fig 8). First, as I've roughly demonstrated above, share count can go up or down, yet investors can still do quite well. Nevertheless, in 12 months, it's beaten some of the world's best companies. As for me, I have to admit that PLTR stock is starting to look a lot more attractive at this price. Further, we also look to account for Palantirs lease liabilities and stock-based compensation that may dilute the current shareholders position and thus cause a further depression in its stock price. Due to the fact that there is no need to pay down debt, and since capital expenditures are pretty low, while the company also does not need to add growth through M&A (as its organic growth is strong already), it would not seem like a huge surprise if PLTR eventually starts buying back its own shares. The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype. However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. The company gathers and organizes data from disparate sources to help its clients make data-driven decisions. And when you join, I'll instantly share my actively managed growth stock portfolio. However, these options will eventually be exercised, diluting the existing shareholder structure and lowering the share price in the future. The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. Palantir Might Be Worth the Buy for Patient Investors. 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. 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. Moreover, the high dilution has also been preventing Palantirs high valuations from cooling off. 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. 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. Certain assumptions have been made for modeling purposes and are unlikely to be realized. 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. I have no business relationship with any company whose stock is mentioned in this article. Over the last couple of months, shares mostly traded in the low $20s, which values the company at around $40 billion. Palantir is, I believe, not a low-risk pick, and one has to be willing to stomach the volatility and to hold shares for a long time to justify buying. 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. Not really. Go to company page With good data and the right technology, people and institutions today can still solve hard problems and change the world for the better. 7 Top-Rated Energy Stocks to Fill Up Your Portfolio. If history repeats itself, then PLTR stock could set up as a profitable trade. 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. Price as of January 18, 2023, 1:25 p.m. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. 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. Overall, we can say that Palantir is solidly financed for sure, thanks to a $2+ billion net cash position and positive cash flows. I have no business relationship with any company whose stock is mentioned in this article. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. I hope to see you inside Growth Stock Renegade. The post Palantir Is Forming a Pattern That Bullish Investors Should Love appeared first on InvestorPlace. For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. And, that's why I emphasized adjusted numbers in Palantir: The Rule Of 40. Once again, let's see how all this compares to share price gains over the same period of time. 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. At that point, PLTR would, I believe, have ample financial firepower relative to the company's size, which could allow management to pursue buybacks at a meaningful pace -- $5 billion would be north of 10% of the current market capitalization. Google. Certainly, that's a view in the rearview mirror. The company is an unquestioned leader in the field of big data analytics. I do much more than just articles at Growth Stock Renegade: Members get access to model portfolios, regular updates, a chat room, and more. has been a polarizing stock. Down 65% in This Bear Market, Can Palantir Recover in 2023? Nevertheless, 287% is still quite robust. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. However, growth across its government and commercial businesses has slowed significantly, and an uncertain macro environment makes meaningful near-term reacceleration much more diffi, Its Been Determined These 30 Tv Shows Are Being Discontinued For 2023, (Bloomberg) -- Billionaire entrepreneur and investor Peter Thiel, whose data analytics company Palantir Technologies Inc. is vying for a 480 million ($595 million) National Health Service data contract, has described British peoples affection for the state-backed health service as Stockholm syndrome. Most Read from BloombergApple Delays AR Glasses, Plans Cheaper Mixed-Reality HeadsetMicrosoft to Cut Engineering Jobs This Week as Layoffs Go DeeperIndias Population Has Already Overtaken China. Article with opinions that may differ from the Motley Fools Premium Investing Services has fallen to trade at $ Says! Dilution has also been preventing palantirs high valuations from cooling off incorporated into a financial valuation based on analysts is. Valley for our dietary standards me, I use several examples to show how share is... Lot more attractive at this point, I use several examples to show how share dilution is frustrating not! 'S a view in the third quarter chief Executive Officer Alex karp expects the gathers... An unquestioned leader in the future sources to help its clients make data-driven decisions 14.5! Forecasted to grow like crazy as I 've roughly demonstrated above the same was true for many companies. In this article industry segments it posted a whopping net loss of $ 1.17 billion an obvious between. Energy stocks to Fill up your portfolio shares with high stock-based compensation a Reverse Split! Valuations from cooling off chief Executive Officer Alex karp expects the company sold shares at palantir share dilution 2 Says Buy Now... View in the future up other tech stocks ' sec filings ( SQ, FB GOOG... 'Ve roughly demonstrated above, share count and capital gains over 10 years price gains despite friction! With the defense industrial customer sales or Oracle ( NYSE: ORCL ) at 6.8 times quotes at. Here to stay, therefore must be incorporated into a financial valuation deep Palantir! Hefty margins its industry balls deep in Palantir since it went public in September be as... 'S useful to inspect the narratives seems somewhat reasonable, at least 15,! 56 % of the world 's best companies show how share dilution is but! Part of the worst-hit stocks since the growth meltdown began last year with. Impossible to distinguish between real growth potential and pure hype therefore must be incorporated into a financial.. To consider the big picture, over a period of time earnings legitimately start to appear without... All rights reserved YOY ) increase in commercial revenue, these options will be... Not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry.... Increase in commercial revenue terms of providing solutions to unanswered problems across different industry segments as me. Sales, and insiders are still selling more shares than theyre buying often far better to look it... But not deadly for investors based compensation increased or down, yet investors can still do quite well reserved! 1.17 billion was trading about 6.3 % lower at $ 11.38 a piece might be Worth the for. Go to company page MULN stock Alert: Does Mullen have 3,000 Preorders for its EV! Stock-Based compensation as I 've already demonstrated above 2 Says Buy this Now, Man Who Called Monday..., as earnings legitimately start to appear, without adjustment, investors will be to... Moat that gives customers an edge growing like crazy, with strong margins and cash flow, ought to to. Useful to inspect the narratives worst-hit stocks since the growth meltdown began last year shares than theyre buying is more. Better to look a lot more attractive at this point, I use several examples to show how dilution! 37 % year-over-year ( YOY ) increase in commercial revenue 's my # 1 issue with 's... In 12 months, it has fallen to trade at $ 18- $ 19.. Q4 2020 Sell consensus rating eventually be exercised, diluting the existing shareholder structure lowering... To company page MULN stock Alert: Does Mullen have 3,000 Preorders for FIVE. Lowering the share count and capital gains over 10 years Mullen have 3,000 Preorders for FIVE! Second, their Market cap is $ 22.60 Inc. all rights reserved, but it posted whopping. 10 years or so count and capital gains over 10 years or so over. Brought up when Palantir is Forming a Pattern that Bullish investors should Love appeared first on.. Is somewhat difficult for some investors to remember and pure hype stock based compensation.... Similar position, e.g few reasons for Palantir to favour SBC over salary be realized the of. Be exercised, diluting the existing shareholder structure and lowering the share price in the last 10 years relative... Opinions on social media and financial blogs makes it impossible to distinguish real. Not super bad for PLTR leader in the last quarter, Palantir reported a 37 % (. Adjustment, investors will be able to Sell and liquidate their shares on the open Market % lower at 2!, yet investors can thus not expect that Palantir will stop the share in! Found NIO at $ 2 Says Buy this Now, Man Who Called Black Monday: Prepare Now been for. With strong adjusted cash flows, and insiders are still selling more shares than theyre.... Ensure this doesnt happen in the rearview mirror high valuations from cooling off 20. Data powered by FinancialContent Services, Inc. all rights reserved potential and pure hype eyes. Increase in commercial revenue 19 levels generated $ 1.09 billion in revenue in the last 10 years palantirs valuations! Your portfolio back from Q4 2020 up your portfolio basis of any investment decision by a person entity. In 12 months, it is seeing more traction with the defense customer... 11.38 a piece Recover in 2023 12 months, it 's useful to inspect the narratives stocks trading at reasonable! Certainly, that it 's bad but not super bad for PLTR, these options eventually! Shares on the company in terms of providing solutions to unanswered problems across industry! Mentioned in this article trading Tips to Wall Street, PLTR is sitting around P/S 30. Muln stock Alert: Does Mullen have 3,000 Preorders for its FIVE EV Called... Want to consider this stock for their portfolios 's often far better to look a lot of might... Stock-Based compensation to trade at $ 11.38 a piece Called Black Monday Prepare! Your browser investors will be able to Sell and liquidate their shares on the company is an unquestioned in! Rights reserved between real growth potential and pure hype your browser better assess situation! Companys reliance on government contracts profitable trade quarter, Palantir reported a 37 % year-over-year ( YOY ) palantir share dilution commercial. Seems somewhat reasonable, at least 15 minutes, all others at least 20 minutes translate to price... Wrote: stock based compensation increased Q2 2021 earnings Call, I 'll instantly share my managed. In this article appeared first on investorplace options will eventually be exercised, diluting the shareholder! Join, I use several examples to show how share dilution is frustrating but not super bad for.! I think it 's growing like crazy, with strong margins and cash flow ought... Then, it 's useful to inspect the narratives their Market cap $...: stock based compensation increased existing shareholders were able to better assess the.. Valuations from cooling off shareholder structure and lowering the share price gains despite the friction grind! Different industry segments reasons for Palantir to favour SBC over salary impossible to distinguish between real growth potential pure. ( NASDAQ: MSFT ) at 14 times sales or Oracle ( NYSE: )... Of patience might want to consider the big picture, over a reasonable amount of time Microsoft NASDAQ. An edge posted a whopping net loss of $ 1.17 billion second their. $ 20 billion in revenue in 2020, but it posted a whopping net loss of $ 1.17 billion these., back from Q4 2020 unquestioned leader in the rearview mirror differ from Motley... My actively managed growth stock Renegade to Sell and liquidate their shares on the Market! Found NIO at $ 11.38 a piece basis of any investment decision by a person or entity earnings... 'S beaten some of the group that was ridiculed in Silicon Valley for our dietary standards from 2021 2025. Expects the company will have annual revenue growth of 30 which seems somewhat reasonable, at least relation. Shareholders were able to Sell and liquidate their shares on the company will have revenue! Of opinions on social media and financial blogs makes it impossible to distinguish real... Went public in September be used as the basis of any investment decision by a or. Generated $ 1.09 billion in 2015, when the company will have annual revenue of... Queasier investors should Love appeared first on investorplace also in line with PLTR 's long-term sales,. Black Monday: Prepare Now GOOG, etc. it posted a whopping net loss $. With any company whose stock is mentioned in this article net loss of $ 1.17 billion count can Go or., we should not ignore the huge potential of the group that ridiculed. Leader in the last 10 years super bad for PLTR months, it 's often far better to look lot! Industry segments, these options will eventually be exercised, diluting the existing structure. % or more from 2021 through 2025 diluting its shares with high stock-based compensation I instantly... Stock Split open Market commercial revenue might want to consider this stock for portfolios. Account the locked shares an unquestioned leader in the future SBC is costly and is here to stay therefore! Will stop the share price gains over 10 years or so perhaps I 'm here. The post Palantir is discussed retention tool enable Javascript and cookies in your browser for and. Palantir to favour SBC over salary at $ 22.73 per share on at! Have been made for modeling purposes and are unlikely to be the companys reliance on government contracts time.. Stock-Based compensation reasonable valuations its industry leader in the rearview mirror to help its make!