Should you invest in Palantir stock? What is this company about? What is its fair value? Is it now the right time to invest or should you rather wait for a pullback? Let’s dive into this analysis for some more insight.
What is Palantir?
Institutions have a lot of data from their operations. This data may be in different databases. Palantir builds software that helps institutions use their own data intelligently and get business value out of it.
Palantir has a wide range of solutions to offer from law enforcement to auto racing and many others. Their known clients have been the United States government, where they get the most money from but also commercial clients like BP and Airbus. Recently they have been focusing on reinforcing their commercial solutions to attract more non-governmental customers.
Palantir was founded in 2003 and has around 2500 employees right now. However, they decided to go public, that is, enter the stock market in September 2020.
Is Palantir special?
Palantir is unique. No other company does something similar. Yes, there are other Artificial Intelligence or Data Analytics companies, but no other company offers such a solid business value out of different and disconnected systems as Palantir does. No other company has such strong ties with the American government in the software industry. Palantir is a unicorn.
Palantir had received very high fundraises before entering the stock market allowing them to operate and grow. Quite recently they decided to grow the sales team, something that may bring much more growth.
Palantir Stock Analysis
Palantir entered the New York Stock Exchange with a valuation of 22 Billion $ and a stock price of around 9.5$. It entered with direct listing, not an IPO (Initial Public Offering) allowing the public market to dictate the price.
Even in 2020, 17 years after its inception, Palantir is an unprofitable company.
As you may see in the charts below, the last quarters and the last two years have had pretty important losses, especially if they are compared to the revenue.
Despite Palantir’s lack of profit, what is important is its growth. Let’s take a look a summary of what they reported in 3Q2020:
- $289.4 million in revenue in the third quarter, up 52% year-over-year
- Full-year 2020 revenue guidance raised to a range of $1.070 billion to $1.072 billion, up 44% year-over-year
- New contracts in third quarter include U.S. Army ($91 million), National Institutes of Health ($36 million), and $300 million renewal with aerospace customer
Palantir is expected to have a 30-40% growth year over year for the next five years making it a very high growth stock to own.
Should I invest in Palantir stock?
Even if a company looks good and is popular, it does not mean we should buy it, right? We need to dive deeper to know if Palantir is a good buy right now.
Moat, popularized by Warren Buffet, is the protection the company has against its enemies. How good and strong is the product or service the company sells to have and keep a competitive advantage in the market in the future. The company needs a wide moat to make sure it keeps its customer base and not lose them.
Palantir has a wide moat as we discussed above offering a unique data analytics platform with proven value to its customers. There is no other company that helped CIA catch Bin Laden.
CEO Alexander Karp is one of our co-founders and has served in various positions in Palantir. He has given interviews and talks explaining Palantir’s goals and purpose. He has also been a member of the board of directors. Mr. Karp holds a B.A. from Haverford College, a J.D. from Stanford University, and a Ph.D. from Goethe University in Frankfurt, Germany.
Peter Thiel, the other co-founder of Palantir and serving as Chairman of the Board of Directors since 2003. He is co-founder of Paypal. Mr. Thiel holds a B.A. in Philosophy from Stanford University and a J.D. from Stanford Law School.
Executive management and board of directors both look excellent.
To know if the stock is a good buy, one of the factors to take into account is the so-called fair or intrinsic value of the company; that is the value of the company without the hype and the fluctuations of the market. This will help us to find the stock price which is worth buying for us to have a good Rate of Return (RoR).
To calculate if the company is a buy for my style of investing, I calculated what I consider the fair price of Palantir taking into account the following:
- Discount rate
- Earnings (EBITDA)
- Outstanding shares
- Analysts’ opinions
To be able to calculate the fair price we need to make some assumptions which, of course, may not be accurate. After my calculations, I checked several analysts’ position on this and averaged it to try to make it more accurate. The price I have got is 20.2$.
So, should you invest in Palantir stock? This is up to you. You should read this analysis, take all the factors into account, the product/service, moat, management, current price, compare it to the fair price, and decide. You should also think if you actually like this company. Are you planning to follow the news in the long term or would you rather just day trade for some quick profit? What you decide is really your decision based on your needs, budget, and investment style.
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