Palantir » PLTR // Info Tech Sector // Strike Price = {subscribe}
For what they do, Palantir is aptly named. We have yet to build clairvoyant crystal balls but we can build sophisticated software. “A palantír (/pæˈlænˌtɪər/; in-universe PL palantíri) is one of several indestructible crystal balls from J. R. R. Tolkien’s epic-fantasy novel The Lord of the Rings. The word comes from Quenya palan ‘far’, and tir ‘watch over’.”
A durable competitive advantage is a “business’ ability to maintain its competitiveness over the competition and successfully protect its long-term profits and market share,” said this fellow. As an investor, just think of it as a water filled ditch around a castle – a Moat. Palantir appears to be a future case study in moat building.
Peter Thiel was a part of the Paypal Mafia. Paypal, as a payments processor, was preoccupied with security. When Paypal was sold, Peter took the security issue to another level and co-founded Palantir in 2003 with his enigmatic friend, Alex Karp. CEO Karp wrote a doctoral thesis in philosophy titled “Aggression in the life-world.”
The Palantir IPO in 2020, to the annoyance of Wall St, was a direct listing. It seems like their bitterness at not being able to profit from the usual IPO process is finally waning now that Palantir is becoming profitable. Money talks. The stock price has more than doubled in the 5 weeks since their earnings call in early May.
Retail investors have always been interested in Palantir. Wall St liked to blame their lack of interest on stock-based compensation. Yes, Palantir gave away a lot of stock, which of course diluted the share value. However, the SBC is dissipating and the SBC enabled them to assemble premier software developer talent. Like Tesla and SpaceX for engineers, Palantir is a top destination for programmers. Short term pain for long term gain. Wall St really only cares about the next 18 months. The retail investor advantage is to look further out than that.
As for the moat – read the company profile below. Palantir has a platform, Gotham, for use in government agencies to manage, make sense of and utilize the reams of data they collect. The other platform, Foundry, is for businesses to utilize the reams of data they collect to increase their operational efficiency and reduce costs. It’s complicated and yes they have been at the forefront of AI and machine learning. But think of it like Microsoft Office, especially Excel. Everyone can use it in a basic way, experts can make it do crazy thighs, but it is indispensable to the operation of virtually every business. Cost of doing biz.
In the foreseeable future there will be those who use Palantir software and those who don’t. You may not want to invest in a large cap company that doesn’t use it to optimize their business, especially since there aren’t really any others offering a competing product. Palantir is able to customize each deployment of their platform. It’s expensive but all the more useful. A main competitor was described as thus a year ago: “Splunk on the other hand is an old lag albeit one that just had a face- and eyelift and is looking for a new relationship.”
There are Brand, Switching, Secrets, Toll, Price & Networks moats. Palantir is building the first three. A one moat company is great, two is excellent, and three is rare indeed. Think Apple and Microsoft.
Palantir is evil as it builds surveillance software for the state and the government sucks. Fair. However, Palantir is a tool-maker and not a state. Yes, most democratic governments suck, but what’s worse? All non-democratic governments. Security is a job that most voters want their government to handle even if we hate the military-industrial complex. May it at least be run as efficiently as possible. Palantir helps with that. “Palantir at its core is a company that aims at helping western governments help to defend this international system by providing AI-based software solutions, which protect democracies from foreign threats.”
In 2022 Palantir’s revenue mix (in millions) was $1,071.7 Government and $834 Commercial. Since revenue from Government has grown at a CAGR of 33.3% and 19.6% for Commercial.
Palantir Profile:
“Palantir Technologies Inc. builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations. The company provides Palantir Gotham, a software platform which enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants, as well as facilitates the handoff between analysts and operational users, helping operators plan and execute real-world responses to threats that have been identified within the platform. It also offers Palantir Foundry, a platform that transforms the ways organizations operate by creating a central operating system for their data; and allows individual users to integrate and analyze the data they need in one place. In addition, it provides Palantir Apollo, a software that enables customers to deploy their own software virtually in any environment.”
Latest Investor Presentation: https://investors.palantir.com/files/Palantir%20Q1%202023%20Business%20Update.pdf
For those into YouTubers, Tom is legit and has been pounding the Palantir drum for years.
Articles in June on Seeking Alpha:
- Strong Buy: 5
- Buy: 4
- Hold: 3
- Sell: 4
Valuation
Our Strike Price has been $9 since our Aug 2022 analysis. We just moved it up. The numbers today don’t really warrant it, but the overall market sentiment has improved and falling below support at $6 is unlikely even in a shitstorm of a market.
Palantir’s foundation is now stronger. They are now profitable and have real EPS and FCF. They are building a formidable moat and although the growth rate isn’t huge it is solid and likely to be stable for many years. Mega cap potential down the road. Hold for the long term unless the market gets overly bubblicious.
Given the run up it makes it difficult to give Palantir a proper margin of safety price. It feels like it has been re-rated and now justifies a higher price to sales multiple. If you are new to the stock you should probably Abide the Strike Price, as tempting as the chart looks. Your patience will likely be rewarded as the dips have become safer to buy with this company.
// THE CHART
The essence of technical analysis; significant price move (up or down), channel (‘longer the base, higher the space’), breakout and buy time. Palantir dropped for 14 months, channelled for a year and 5 weeks ago the spring was released and it’s up 113%. Classic example. Now how high does it go before it starts to channel again? Presuming it doesn’t get way over extended and has to fall way back first. In a perfect world the next channel would be in the $20-25 range.
// SOME NUMBERS
- 2.67 year CAGR = 20% (Sep 30, 2020 to Jun 16, 2023 || $10 -> $16.30)
- 175% above 52 week low of $5.92
- Future Growth Rate Estimate: {subscribe}
- 5 year EPS = ($1.11) to ($0.18) for 84% growth
- 5 year Revenue = $595.4M to $1905.9M for 220% growth
- 5 year analyst estimates EPS = $0.21 to $0.50 for 138% growth
- 5 year analyst estimates Revenue = $2.21B to $5.18B for 134% growth
- 5 year Price Target = {subscribe} at a Price to Revenue multiple of {subscribe}
- Sector median P/R (ttm) = 2.9
- PLTR = 17.4 with a 5 year avg. of 19.2
- Price to Free Cash Flow per Share = 95.9 🤔
- Operating Margin = -6% 😢 (but it was -13% Aug 2022)
- Return on Invested Capital = -9.1% 😢
- Long Term Debt to Total Assets = 0% 😀
- Cash & Equivalents to Total Operating Expense = 173% 😀
// NEWS, REVIEWS & COMMENTS
June 17, 2023
SA // hold: Following Stan Druckenmiller
“At current multiples, Palantir is highly speculative and in our view may be worth only taking a small position in to capture more upside potential from this AI rally. One can certainly argue that Palantir, like Nvidia, continues to exhibit strong earnings growth even in a “hard landing” scenario, making the stock a good value in adverse macroeconomic times. As for AI, if Palantir is able to deliver on its promises and shows strong earnings growth and progress in the AI space in the coming quarters, it is fair to note that it is probably a great position to hold for the long term,”
// GGI 💬
Yup.
June 16, 2023
SA // strong buy: Palantir Can Benefit From The Fed Decision And The AI Boom
“After the 148.98% run-up in 2023, I still feel PLTR is a buy-and-hold for the future. Shares of PLTR could retrace, and a better opportunity could present itself, but PLTR has everything going for it to be a strong long-term investment. AI is positioned to be the next technology boom, and putting opinions aside, PLTRs customers and independent research firms are the voices that matter regarding PLTRs AI capabilities. PLTR continues to increase its customer count and sign more deals which are making Q2 earnings very interesting.”
// GGI 💬
Yup.
June 11, 2023
SA // sell: Sell The AI Rip
“The key investor takeaway is that Palantir has soared on AI hype. The company is definitely poised to benefit from AI demand in enterprises and military organizations, but the stock is now priced for perfection and enterprise AI software demand hasn’t actually flowed through to the results yet.
Investors should sell the rip and look to buy the tech titan on a sell-off to a more rational valuation.”
// GGI 💬
Not wrong.
June 5, 2023
SA // strong buy: Why Palantir Remains My Top Holding
“Peter Thiel (co-founder) built Palantir based on the idea that a winning company must be monopolistic and that competition is “for losers.” While this business philosophy may sound harsh, I agree with it. That’s why I am continuously drawn to monopolistic-style companies in blue ocean environments. In this atmosphere, the company can achieve an extensive growth runway coupled with remarkable intermediate and long-term profitability.
Palantir is an excellent example of a monopolistic style company operating in a high-growth segment, capable of expanding market share and profitability considerably in the long term. Palantir has the potential to become a $30-50 stock in the next several years (3-5).”
// GGI 💬
Thiel’s book: Zero to One: Notes on Startups, or How to Build the Future
