3 Reasons To Avoid Palantir

seekingalpha2021-06-22

Summary At a market cap of ~$47 billion, Palantir is priced like a high-margin SaaS company, even though it doesn’t operate like one. Due to the high cost of Palantir’s software, its pool of ...

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精彩评论

Des79
2021-08-01
Des79
At the moment, I nv load up. I just hold and wait long. Its doesn't help much after cost average. Due to the price had been at that range. It is still a good stock, if you look at long run.
DansonYong
2021-06-28
DansonYong
For long term
LeonardKSW
2021-06-24
LeonardKSW
1 reason u shd get lost
- LeonardKSW:
  😁😁😁
- Prashant:
  haha
Stylerz
2021-06-24
Stylerz
To the moon
BlankTrader
2021-06-23
BlankTrader
Hold on pltr
- Stylerz:
  yes hold!
Raxon
2021-06-23
Raxon
😨

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Members of Best Short Ideas get exclusive ideas and guidance to navigate any climate.Learn More »\n\nPalantir’s (PLTR) stock has been trading between $18 to $30 per share in recent months and it’s unlikely that it’ll breach those levels anytime soon. Despite its innovative software solutions, the company’s business model has its flaws and various insider actions are preventing its stock from growing further. As a result, wecontinueto believe that Palantir’s stock will go nowhere from here anytime soon and believe that there are three major reasons why to avoid Palantir at this stage.\nReason #1: Long Sales Cycle and the Lack of Scalability Options Are Limiting the Upside\nFounded in 2003, Palantir, through its platforms Gotham and Foundry, develops custom-built software solutions to manage big amounts of data of complex projects in various military and commercial fields. The biggest downside of Palantir’s business model is that its sales cycle could last from a couple of months to over a year depending on a customer, which prevents the company from easily scaling its solutions. Palantir even has a position of a forward-deployed engineer, who like a consultant works closely with the potential clients for a while, learns about their business, and looks for ways to help them better manage their data. Considering this, it’s safe to assume that Palantir is more of a consulting company than a scalable SaaS business.\nAnother downside of Palantir is that it’s not performing well in terms of customer adds. As of today, the company has less than 200 customers, and it’s not even one of the major contractors of the DoD despite working with the federal government for nearly two decades. In addition, as there’s a critical shortage of key components in automotive and other industries, it’s safe to assume that businesses from those fields will be looking for software that could help them find weak links in their supply chain to help them effectively weather the current crisis, and Palantir should be at the top of their list. However, so far Palantir hasn’t added a sizeable number of major commercial clients in recent months.\nAt this stage, the only advantage of Palantir is that it finds and structures the data better than others. However, the problem is that its software is suitable mostly for the big organizations where a lot of business processes are involved. On top of that, let’s not forget that Palantir’s average contract value is in the range of $5 million to $6 million, while some businesses pay it as high as $10 million to $100 million to use its software. With such a high cost of using Palantir’s software, its pool of potential clients is significantly small in comparison to the average SaaS company.\nThat’s one of the main reasons why Palantir failed to gain traction in the last 18 years, never made a profit throughout most of its history, and never recorded a net income since becoming a public company last year. While it’s normal for a growth company not to make a profit at first, let’s not forget that Palantir is no longer a startup and its pool of potential customers is relatively small. In addition, let’s also not ignore the fact that two dozen of its clients generate the majority of revenues and a loss of even one client could significantly prevent its top-line from growing at the current rate. As we’ve noted in our previous article on the company, business behemoths like American Express (AXP) and Coca-Cola (KO) already stopped working with Palantir, so there’s no guarantee that nearly 200 of its existing customers will continue to work with Palantir’s software in the long run.\nReason #2: Shareholder Unfriendliness\nBullish investors constantly discuss how good of a company Palantir is, and how its software solutions could revolutionize every industry that exists. However, they often fail to look at Palantir from an investment perspective and are not mentioning the things that prevented and will likely prevent its stock from significantly appreciating in value in the foreseeable future. If we look at Palantir’s stock chart since mid-February, we’ll see that the share price has been constantly moving in the range between $18 and $30 per share without appreciating much. This is because of several things.\nChart: Seeking Alpha\nFirst of all, Palantir has an excessive stock-based compensation program, which is hurting the company’s bottom line. InQ1, Palantir’s stock-based compensation expense stood at $193 million, up ~257% Y/Y from $54 million a year ago, while its operating loss widened from $70.2 million in Q1’20 to $114 million in Q1’21, and while its net loss widened as well from $54.3 million in Q1’20 to $123.4 million in Q1’21. Another downside of the program is that it’s not friendly to its shareholders, most of whom are retail investors that own the majority of the company and are constantly being diluted. While at the end of 2020, Palantir had 1.52 billion shares outstanding, at the end of Q1 its share count already increased by 18% to 1.80 billion shares outstanding. On top of that, the company’s latest10-Qfiling shows that at the end of March 477 million options were outstanding on balance with an average exercise price of $6.39 per share, significantly below the current market value of over $20 per share. Those options represent ~26% of the current share count and if exercised in the upcoming months, will dilute existing shareholders even more. Considering this, buying Palantir stock can’t be considered a wise investment at this stage, as there’s still a high risk that the company will continue to exercise some portion of those options every quarter, which will make the investment in the company worth less than before.\nAnother shareholder unfriendly action that Palantir insiders are doing is the constant selling of stock, which adds additional selling pressure and prevents the price from appreciating further from the current levels. Nearly half a billion worth of Palantir shares weresoldby its insiders in the last 4 quarters, and in less than a month since our last article on the company came out they sold an additional $33 million worth of shares. As a result of those actions, insiders in total sold $163 million worth of shares in Q2, significantly more than in Q1 when the lock-up period ended, and that selling is unlikely to stop anytime soon. Due to those actions, institutional investors began to add the selling pressure as well. While the inflow of institutional funds in Q2increasedby 13.4% Q/Q to $2.95 billion, the capital outflow increased as well by 213% Q/Q to $1.82 billion. Considering this, we believe that the selling of shares in bulk will continue and this will prevent Palantir's share price from significantly rising anytime soon.\nReason #3: Valuation\nAt a market cap of ~$47 billion, Palantir is priced like a high-margin SaaS company, even though it doesn’t operate like one. In Q1, Palantir generated only $341 million in revenues, and in Q2 and FY21 it’sexpectedto generate $360 million and $1.48 billion in revenues, respectively. Considering those numbers, it will take years for Palantir to reach its current valuation even if it continues to grow at the current rate, and there’s no guarantee that the growth won’t slow down in the upcoming years due to the limited pool of potential customers. Therefore, it’s safe to say that at a forward P/E ratio of 174x and a forward P/S ratio of 32x, Palantir is extremely overvalued and doesn’t have a lot of upside at this stage.\nIn the end, the company could become an interesting long-term play only when the stock declines lower, most of the options are exercised and insiders ease the selling pressure. Until then, Palantir will remain an unattractive stock that’s unlikely to significantly appreciate from the current levels and that’s why we believe that it’s better to avoid it at this stage and look for other, more attractive growth opportunities.","kind":null,"is_publish_news":false,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":802706438,"gmtCreate":1627801877924,"gmtModify":1631891261380,"author":{"id":"3577018109379877","authorId":"3577018109379877","name":"Des79","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"At the moment, I nv load up. I just hold and wait long. Its doesn't help much after cost average. Due to the price had been at that range. It is still a good stock, if you look at long run.","listText":"At the moment, I nv load up. I just hold and wait long. Its doesn't help much after cost average. Due to the price had been at that range. It is still a good stock, if you look at long run.","text":"At the moment, I nv load up. I just hold and wait long. Its doesn't help much after cost average. Due to the price had been at that range. It is still a good stock, if you look at long run.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/802706438","repostId":1111429380,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":127570224,"gmtCreate":1624859287568,"gmtModify":1633947835657,"author":{"id":"3577608661218389","authorId":"3577608661218389","name":"DansonYong","avatar":"https://static.tigerbbs.com/d847e6b2cafe58e68ceb1d9adcb8038f","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"For long term","listText":"For long term","text":"For long term","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/127570224","repostId":1111429380,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":126088722,"gmtCreate":1624537629866,"gmtModify":1631893953221,"author":{"id":"3569318025811476","authorId":"3569318025811476","name":"LeonardKSW","avatar":"https://static.tigerbbs.com/eeba92ccfc8a91444aa3e36de4a39425","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"1 reason u shd get lost","listText":"1 reason u shd get lost","text":"1 reason u shd get lost","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/126088722","repostId":1111429380,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5054674,"gmtCreate":1624888990156,"gmtModify":1631893953231,"authorId":3569318025811476,"author":{"id":3569318025811476,"authorId":3569318025811476,"name":"LeonardKSW","avatar":"https://static.tigerbbs.com/eeba92ccfc8a91444aa3e36de4a39425","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":126088722,"type":1,"supId":5052836,"prevId":0,"content":"😁😁😁","text":"😁😁😁","html":"😁😁😁"},{"id":5052836,"gmtCreate":1624881265233,"gmtModify":1631893953222,"authorId":3569291088297790,"author":{"id":3569291088297790,"authorId":3569291088297790,"name":"Prashant","avatar":"https://static.tigerbbs.com/d8814671cf4887208a8404f7fc63d9fd","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":126088722,"type":1,"supId":0,"prevId":0,"content":"<u>haha</u>","text":"<u>haha</u>","html":"<u>haha</u>"}],"langContent":"EN"},{"id":121578625,"gmtCreate":1624486124667,"gmtModify":1634005567254,"author":{"id":"3577619205438357","authorId":"3577619205438357","name":"Stylerz","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"To the moon","listText":"To the moon","text":"To the moon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/121578625","repostId":1111429380,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":121686356,"gmtCreate":1624461860075,"gmtModify":1634005750953,"author":{"id":"3575019409404952","authorId":"3575019409404952","name":"BlankTrader","avatar":"https://static.tigerbbs.com/ee529534fc07f1ba05bacdda297a3cb6","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Hold on pltr","listText":"Hold on pltr","text":"Hold on pltr","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/121686356","repostId":1111429380,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4982172,"gmtCreate":1624486145229,"gmtModify":1635249561765,"authorId":3577619205438357,"author":{"id":3577619205438357,"authorId":3577619205438357,"name":"Stylerz","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":121686356,"type":1,"supId":0,"prevId":0,"content":"yes hold!","text":"yes hold!","html":"yes 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