Palantir's Valuation Is A Lord Of The Rings Fantasy

6
3
Favorite

Palantir's Valuation Is A Lord Of The Rings Fantasy

seekingalpha10-02

SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment（3）

Coldastone17
·10-03
U believe him? Cos he is pushing for a shorts
Reply
Like
Report
romanc9
·10-02
Good for the writer..
Reply
Like
Report
Let It Snow
·10-02
o o
Reply
Like
Report

Most Discussed

7x24

All

Terms and Conditions·Privacy Policy

Company: TTMF Limited. Tech supported by Xiangshang Yixin.

Email：uservice@ttm.financial

{"i18n":{"language":"en_US"},"data":{"share":"https://ttm.financial/m/news/1152240833?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2024-10-02 11:22","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"1152240833","market":"us","top_or_hot":-1,"title":"Palantir's Valuation Is A Lord Of The Rings Fantasy","media":"seekingalpha","content":"<div>\n<p>SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....</p>\n\n<a href=\"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Palantir's Valuation Is A Lord Of The Rings Fantasy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPalantir's Valuation Is A Lord Of The Rings Fantasy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-02 11:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....</p>\n\n<a href=\"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"PLTR","symbol_name":"Palantir Technologies Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy","article_id":"1152240833","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1152240833","pubTimestamp":1727839335,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Does Palantir have the attributes of a premium-valued company?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"PLTR":"Palantir Technologies Inc."},"translate_title":"Palantir的估值就像指环王的幻想","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"PLTR":1.1},"content_text":"SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.The “black box” nature of the company’s services and its controversial CEO give me pause.Valuation measures are off-the-charts overvalued and its entry into the S&P 500 could be viewed as the “Inclusion Curse”.ThesisA few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.IntroductionPalantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!Does Palantir have the attributes of a premium-valued company?I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. Quantitatively they include:Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats & raises” High and growing Rule of 40 (Revenue growth + FCF Margin)Rule of 40Qualitatively premium companies have a:Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.Recent financial performanceSeveral SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom & top-line “beat & raise.” In fact, revenue growth is accelerating (see chart below).GrowthThe Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).growth of govt vs businessBusiness position and TAMPalantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!Forrester WaveThe many controversies of KarpWhen I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners & losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.ESG and Glassdoor reviewsDespite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.ESG ratingGlassdoor RatingsOther anecdotal evidence of a top in Palantir’s stock price:Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.Insider buying sellingstock chartSeasonalityBesides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).seasonality of share price movesS&P 500 “Inclusion Curse”On 9/6/2024, S&P Global announced that Palantir would join the S&P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&P 500 in Dec’20, to which the shares have underperformed since.S&P 500 inclusion studyValuationPalantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).Valuation multiplesThe best valuation methodHowever, I would like to focus on EV/forward Revenues to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at 28.6x is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)Based on the above analysis, Palantir’s shares could drop to around $20/share or 40-45% from current levels during this Bull market, and far lower if there’s a correction.EV to Revenue multiplesConclusion:I won't mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my \"Strong Sell” rating.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":356007818223920,"gmtCreate":1727918054309,"gmtModify":1727918058048,"author":{"id":"3562193648411471","authorId":"3562193648411471","name":"Coldastone17","avatar":"https://community-static.tradeup.com/news/4f1bd3166de45ed68ce52aacd1ca37f1","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3562193648411471","authorIdStr":"3562193648411471"},"htmlText":"U believe him? Cos he is pushing for a shorts","listText":"U believe him? Cos he is pushing for a shorts","text":"U believe him? Cos he is pushing for a shorts","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/356007818223920","repostId":1152240833,"repostType":4,"repost":{"id":"1152240833","kind":"news","pubTimestamp":1727839335,"share":"https://ttm.financial/m/news/1152240833?lang=&edition=fundamental","pubTime":"2024-10-02 11:22","market":"us","language":"en","title":"Palantir's Valuation Is A Lord Of The Rings Fantasy","url":"https://stock-news.laohu8.com/highlight/detail?id=1152240833","media":"seekingalpha","summary":"Does Palantir have the attributes of a premium-valued company?","content":"<html><head></head><body><h2 id=\"id_3527223762\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li><p>Palantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.</p></li><li><p>Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.</p></li><li><p>The “black box” nature of the company’s services and its controversial CEO give me pause.</p></li><li><p>Valuation measures are off-the-charts overvalued and its entry into the S&amp;P 500 could be viewed as the “Inclusion Curse”.</p></li></ul><h2 id=\"id_290446489\" style=\"text-align: left;\">Thesis</h2><p style=\"text-align: left;\">A few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.</p><h2 id=\"id_56834654\" style=\"text-align: left;\">Introduction</h2><p style=\"text-align: left;\">Palantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.</p><p style=\"text-align: left;\">Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!</p><h2 id=\"id_2970024773\" style=\"text-align: left;\">Does Palantir have the attributes of a premium-valued company?</h2><p style=\"text-align: left;\">I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. <strong>Quantitatively</strong> they include:</p><p style=\"text-align: left;\">Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats &amp; raises” High and growing Rule of 40 (Revenue growth + FCF Margin)</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/64292e93129a51dcf5e39b2964dbd414\" alt=\"Rule of 40\" title=\"Rule of 40\" tg-width=\"640\" tg-height=\"295\"/><span>Rule of 40</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"><strong>Qualitatively</strong> premium companies have a:</p><p style=\"text-align: left;\">Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.</p><h2 id=\"id_2205772897\" style=\"text-align: left;\">Recent financial performance</h2><p style=\"text-align: left;\">Several SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom &amp; top-line “beat &amp; raise.” In fact, revenue growth is accelerating (see chart below).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/556d1910e41b4b5686ee21aacafd12b6\" alt=\"Growth\" title=\"Growth\" tg-width=\"640\" tg-height=\"342\"/><span>Growth</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\">The Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/01bf04273ebe82caddea7ff7103dc00b\" alt=\"growth of govt vs business\" title=\"growth of govt vs business\" tg-width=\"640\" tg-height=\"236\"/><span>growth of govt vs business</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_4274965912\" style=\"text-align: left;\">Business position and TAM</h2><p style=\"text-align: left;\">Palantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/1b353ea026bd9a46752960b44d03afb5\" alt=\"Forrester Wave\" title=\"Forrester Wave\" tg-width=\"640\" tg-height=\"634\"/><span>Forrester Wave</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_740308643\" style=\"text-align: left;\">The many controversies of Karp</h2><p style=\"text-align: left;\">When I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.</p><p style=\"text-align: left;\">Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners &amp; losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.</p><h2 id=\"id_1430941454\" style=\"text-align: left;\">ESG and Glassdoor reviews</h2><p style=\"text-align: left;\">Despite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ff09024a6445988f355c059edd4d83b5\" alt=\"ESG rating\" title=\"ESG rating\" tg-width=\"640\" tg-height=\"552\"/><span>ESG rating</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ed69bad5a5a9a8d18349c713a9135861\" alt=\"Glassdoor Ratings\" title=\"Glassdoor Ratings\" tg-width=\"640\" tg-height=\"494\"/><span>Glassdoor Ratings</span></p><p style=\"text-align: left;\"></p><h3 id=\"id_4125998872\" style=\"text-align: left;\">Other anecdotal evidence of a top in Palantir’s stock price:</h3><p style=\"text-align: left;\">Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&amp;P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/38089939e23649bf966afd9cf0635e7c\" alt=\"Insider buying selling\" title=\"Insider buying selling\" tg-width=\"640\" tg-height=\"282\"/><span>Insider buying selling</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/20e97590ee62b9fc7529915c2c63e09b\" alt=\"stock chart\" title=\"stock chart\" tg-width=\"640\" tg-height=\"295\"/><span>stock chart</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3704377079\" style=\"text-align: left;\">Seasonality</h2><p style=\"text-align: left;\">Besides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8dcd4a3cd16e8c17eed053e473903575\" alt=\"seasonality of share price moves\" title=\"seasonality of share price moves\" tg-width=\"640\" tg-height=\"233\"/><span>seasonality of share price moves</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3959597449\" style=\"text-align: left;\">S&amp;P 500 “Inclusion Curse”</h2><p style=\"text-align: left;\">On 9/6/2024, S&amp;P Global announced that Palantir would join the S&amp;P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&amp;P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&amp;P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&amp;P 500 in Dec’20, to which the shares have underperformed since.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/51566a7b8ebb73341286941672c19b36\" alt=\"S&amp;P 500 inclusion study\" title=\"S&amp;P 500 inclusion study\" tg-width=\"640\" tg-height=\"292\"/><span>S&amp;P 500 inclusion study</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1115392343\" style=\"text-align: left;\">Valuation</h2><p style=\"text-align: left;\">Palantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/452f2e7c905620a59d8661bbae6fee2e\" alt=\"Valuation multiples\" title=\"Valuation multiples\" tg-width=\"640\" tg-height=\"375\"/><span>Valuation multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1550243359\" style=\"text-align: left;\">The best valuation method</h2><p style=\"text-align: left;\">However, I would like to focus on <strong>EV/forward Revenues</strong> to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at <strong>28.6x</strong> is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.</p><p style=\"text-align: left;\">Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)</p><p style=\"text-align: left;\">Based on the above analysis, Palantir’s shares could drop to around <strong>$20/share</strong> or 40-45% from current levels during this Bull market, and far lower if there’s a correction.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/02640f4bc9ec9be1dfa0c8a2e2eaf399\" alt=\"EV to Revenue multiples\" title=\"EV to Revenue multiples\" tg-width=\"640\" tg-height=\"329\"/><span>EV to Revenue multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_2642030854\" style=\"text-align: left;\">Conclusion:</h2><p style=\"text-align: left;\">I won&#39;t mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my &#34;<strong>Strong</strong> <strong>Sell”</strong> rating.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Palantir's Valuation Is A Lord Of The Rings Fantasy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPalantir's Valuation Is A Lord Of The Rings Fantasy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-02 11:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....</p>\n\n<a href=\"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"PLTR":"Palantir Technologies Inc."},"source_url":"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1152240833","content_text":"SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.The “black box” nature of the company’s services and its controversial CEO give me pause.Valuation measures are off-the-charts overvalued and its entry into the S&P 500 could be viewed as the “Inclusion Curse”.ThesisA few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.IntroductionPalantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!Does Palantir have the attributes of a premium-valued company?I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. Quantitatively they include:Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats & raises” High and growing Rule of 40 (Revenue growth + FCF Margin)Rule of 40Qualitatively premium companies have a:Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.Recent financial performanceSeveral SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom & top-line “beat & raise.” In fact, revenue growth is accelerating (see chart below).GrowthThe Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).growth of govt vs businessBusiness position and TAMPalantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!Forrester WaveThe many controversies of KarpWhen I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners & losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.ESG and Glassdoor reviewsDespite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.ESG ratingGlassdoor RatingsOther anecdotal evidence of a top in Palantir’s stock price:Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.Insider buying sellingstock chartSeasonalityBesides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).seasonality of share price movesS&P 500 “Inclusion Curse”On 9/6/2024, S&P Global announced that Palantir would join the S&P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&P 500 in Dec’20, to which the shares have underperformed since.S&P 500 inclusion studyValuationPalantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).Valuation multiplesThe best valuation methodHowever, I would like to focus on EV/forward Revenues to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at 28.6x is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)Based on the above analysis, Palantir’s shares could drop to around $20/share or 40-45% from current levels during this Bull market, and far lower if there’s a correction.EV to Revenue multiplesConclusion:I won't mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my \"Strong Sell” rating.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355702998344072,"gmtCreate":1727843639210,"gmtModify":1727843643116,"author":{"id":"4102495020619380","authorId":"4102495020619380","name":"romanc9","avatar":"https://static.tigerbbs.com/76bfe37245defa055adfff7453f1520f","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1,"idStr":"4102495020619380","authorIdStr":"4102495020619380"},"htmlText":"Good for the writer..&nbsp;","listText":"Good for the writer..&nbsp;","text":"Good for the writer..","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355702998344072","repostId":1152240833,"repostType":2,"repost":{"id":"1152240833","kind":"news","pubTimestamp":1727839335,"share":"https://ttm.financial/m/news/1152240833?lang=&edition=fundamental","pubTime":"2024-10-02 11:22","market":"us","language":"en","title":"Palantir's Valuation Is A Lord Of The Rings Fantasy","url":"https://stock-news.laohu8.com/highlight/detail?id=1152240833","media":"seekingalpha","summary":"Does Palantir have the attributes of a premium-valued company?","content":"<html><head></head><body><h2 id=\"id_3527223762\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li><p>Palantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.</p></li><li><p>Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.</p></li><li><p>The “black box” nature of the company’s services and its controversial CEO give me pause.</p></li><li><p>Valuation measures are off-the-charts overvalued and its entry into the S&amp;P 500 could be viewed as the “Inclusion Curse”.</p></li></ul><h2 id=\"id_290446489\" style=\"text-align: left;\">Thesis</h2><p style=\"text-align: left;\">A few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.</p><h2 id=\"id_56834654\" style=\"text-align: left;\">Introduction</h2><p style=\"text-align: left;\">Palantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.</p><p style=\"text-align: left;\">Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!</p><h2 id=\"id_2970024773\" style=\"text-align: left;\">Does Palantir have the attributes of a premium-valued company?</h2><p style=\"text-align: left;\">I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. <strong>Quantitatively</strong> they include:</p><p style=\"text-align: left;\">Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats &amp; raises” High and growing Rule of 40 (Revenue growth + FCF Margin)</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/64292e93129a51dcf5e39b2964dbd414\" alt=\"Rule of 40\" title=\"Rule of 40\" tg-width=\"640\" tg-height=\"295\"/><span>Rule of 40</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"><strong>Qualitatively</strong> premium companies have a:</p><p style=\"text-align: left;\">Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.</p><h2 id=\"id_2205772897\" style=\"text-align: left;\">Recent financial performance</h2><p style=\"text-align: left;\">Several SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom &amp; top-line “beat &amp; raise.” In fact, revenue growth is accelerating (see chart below).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/556d1910e41b4b5686ee21aacafd12b6\" alt=\"Growth\" title=\"Growth\" tg-width=\"640\" tg-height=\"342\"/><span>Growth</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\">The Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/01bf04273ebe82caddea7ff7103dc00b\" alt=\"growth of govt vs business\" title=\"growth of govt vs business\" tg-width=\"640\" tg-height=\"236\"/><span>growth of govt vs business</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_4274965912\" style=\"text-align: left;\">Business position and TAM</h2><p style=\"text-align: left;\">Palantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/1b353ea026bd9a46752960b44d03afb5\" alt=\"Forrester Wave\" title=\"Forrester Wave\" tg-width=\"640\" tg-height=\"634\"/><span>Forrester Wave</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_740308643\" style=\"text-align: left;\">The many controversies of Karp</h2><p style=\"text-align: left;\">When I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.</p><p style=\"text-align: left;\">Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners &amp; losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.</p><h2 id=\"id_1430941454\" style=\"text-align: left;\">ESG and Glassdoor reviews</h2><p style=\"text-align: left;\">Despite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ff09024a6445988f355c059edd4d83b5\" alt=\"ESG rating\" title=\"ESG rating\" tg-width=\"640\" tg-height=\"552\"/><span>ESG rating</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ed69bad5a5a9a8d18349c713a9135861\" alt=\"Glassdoor Ratings\" title=\"Glassdoor Ratings\" tg-width=\"640\" tg-height=\"494\"/><span>Glassdoor Ratings</span></p><p style=\"text-align: left;\"></p><h3 id=\"id_4125998872\" style=\"text-align: left;\">Other anecdotal evidence of a top in Palantir’s stock price:</h3><p style=\"text-align: left;\">Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&amp;P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/38089939e23649bf966afd9cf0635e7c\" alt=\"Insider buying selling\" title=\"Insider buying selling\" tg-width=\"640\" tg-height=\"282\"/><span>Insider buying selling</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/20e97590ee62b9fc7529915c2c63e09b\" alt=\"stock chart\" title=\"stock chart\" tg-width=\"640\" tg-height=\"295\"/><span>stock chart</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3704377079\" style=\"text-align: left;\">Seasonality</h2><p style=\"text-align: left;\">Besides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8dcd4a3cd16e8c17eed053e473903575\" alt=\"seasonality of share price moves\" title=\"seasonality of share price moves\" tg-width=\"640\" tg-height=\"233\"/><span>seasonality of share price moves</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3959597449\" style=\"text-align: left;\">S&amp;P 500 “Inclusion Curse”</h2><p style=\"text-align: left;\">On 9/6/2024, S&amp;P Global announced that Palantir would join the S&amp;P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&amp;P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&amp;P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&amp;P 500 in Dec’20, to which the shares have underperformed since.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/51566a7b8ebb73341286941672c19b36\" alt=\"S&amp;P 500 inclusion study\" title=\"S&amp;P 500 inclusion study\" tg-width=\"640\" tg-height=\"292\"/><span>S&amp;P 500 inclusion study</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1115392343\" style=\"text-align: left;\">Valuation</h2><p style=\"text-align: left;\">Palantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/452f2e7c905620a59d8661bbae6fee2e\" alt=\"Valuation multiples\" title=\"Valuation multiples\" tg-width=\"640\" tg-height=\"375\"/><span>Valuation multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1550243359\" style=\"text-align: left;\">The best valuation method</h2><p style=\"text-align: left;\">However, I would like to focus on <strong>EV/forward Revenues</strong> to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at <strong>28.6x</strong> is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.</p><p style=\"text-align: left;\">Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)</p><p style=\"text-align: left;\">Based on the above analysis, Palantir’s shares could drop to around <strong>$20/share</strong> or 40-45% from current levels during this Bull market, and far lower if there’s a correction.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/02640f4bc9ec9be1dfa0c8a2e2eaf399\" alt=\"EV to Revenue multiples\" title=\"EV to Revenue multiples\" tg-width=\"640\" tg-height=\"329\"/><span>EV to Revenue multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_2642030854\" style=\"text-align: left;\">Conclusion:</h2><p style=\"text-align: left;\">I won&#39;t mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my &#34;<strong>Strong</strong> <strong>Sell”</strong> rating.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Palantir's Valuation Is A Lord Of The Rings Fantasy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPalantir's Valuation Is A Lord Of The Rings Fantasy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-02 11:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....</p>\n\n<a href=\"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"PLTR":"Palantir Technologies Inc."},"source_url":"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1152240833","content_text":"SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.The “black box” nature of the company’s services and its controversial CEO give me pause.Valuation measures are off-the-charts overvalued and its entry into the S&P 500 could be viewed as the “Inclusion Curse”.ThesisA few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.IntroductionPalantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!Does Palantir have the attributes of a premium-valued company?I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. Quantitatively they include:Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats & raises” High and growing Rule of 40 (Revenue growth + FCF Margin)Rule of 40Qualitatively premium companies have a:Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.Recent financial performanceSeveral SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom & top-line “beat & raise.” In fact, revenue growth is accelerating (see chart below).GrowthThe Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).growth of govt vs businessBusiness position and TAMPalantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!Forrester WaveThe many controversies of KarpWhen I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners & losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.ESG and Glassdoor reviewsDespite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.ESG ratingGlassdoor RatingsOther anecdotal evidence of a top in Palantir’s stock price:Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.Insider buying sellingstock chartSeasonalityBesides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).seasonality of share price movesS&P 500 “Inclusion Curse”On 9/6/2024, S&P Global announced that Palantir would join the S&P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&P 500 in Dec’20, to which the shares have underperformed since.S&P 500 inclusion studyValuationPalantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).Valuation multiplesThe best valuation methodHowever, I would like to focus on EV/forward Revenues to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at 28.6x is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)Based on the above analysis, Palantir’s shares could drop to around $20/share or 40-45% from current levels during this Bull market, and far lower if there’s a correction.EV to Revenue multiplesConclusion:I won't mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my \"Strong Sell” rating.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355662849282112,"gmtCreate":1727841223657,"gmtModify":1727847450853,"author":{"id":"3579760554038249","authorId":"3579760554038249","name":"Let It Snow","avatar":"https://community-static.tradeup.com/news/ccf75d1aa0649ec604ca0b7912bf14bb","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3579760554038249","authorIdStr":"3579760554038249"},"htmlText":"o o","listText":"o o","text":"o o","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355662849282112","repostId":1152240833,"repostType":4,"repost":{"id":"1152240833","kind":"news","pubTimestamp":1727839335,"share":"https://ttm.financial/m/news/1152240833?lang=&edition=fundamental","pubTime":"2024-10-02 11:22","market":"us","language":"en","title":"Palantir's Valuation Is A Lord Of The Rings Fantasy","url":"https://stock-news.laohu8.com/highlight/detail?id=1152240833","media":"seekingalpha","summary":"Does Palantir have the attributes of a premium-valued company?","content":"<html><head></head><body><h2 id=\"id_3527223762\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li><p>Palantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.</p></li><li><p>Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.</p></li><li><p>The “black box” nature of the company’s services and its controversial CEO give me pause.</p></li><li><p>Valuation measures are off-the-charts overvalued and its entry into the S&amp;P 500 could be viewed as the “Inclusion Curse”.</p></li></ul><h2 id=\"id_290446489\" style=\"text-align: left;\">Thesis</h2><p style=\"text-align: left;\">A few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.</p><h2 id=\"id_56834654\" style=\"text-align: left;\">Introduction</h2><p style=\"text-align: left;\">Palantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.</p><p style=\"text-align: left;\">Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!</p><h2 id=\"id_2970024773\" style=\"text-align: left;\">Does Palantir have the attributes of a premium-valued company?</h2><p style=\"text-align: left;\">I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. <strong>Quantitatively</strong> they include:</p><p style=\"text-align: left;\">Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats &amp; raises” High and growing Rule of 40 (Revenue growth + FCF Margin)</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/64292e93129a51dcf5e39b2964dbd414\" alt=\"Rule of 40\" title=\"Rule of 40\" tg-width=\"640\" tg-height=\"295\"/><span>Rule of 40</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"><strong>Qualitatively</strong> premium companies have a:</p><p style=\"text-align: left;\">Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.</p><h2 id=\"id_2205772897\" style=\"text-align: left;\">Recent financial performance</h2><p style=\"text-align: left;\">Several SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom &amp; top-line “beat &amp; raise.” In fact, revenue growth is accelerating (see chart below).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/556d1910e41b4b5686ee21aacafd12b6\" alt=\"Growth\" title=\"Growth\" tg-width=\"640\" tg-height=\"342\"/><span>Growth</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\">The Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/01bf04273ebe82caddea7ff7103dc00b\" alt=\"growth of govt vs business\" title=\"growth of govt vs business\" tg-width=\"640\" tg-height=\"236\"/><span>growth of govt vs business</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_4274965912\" style=\"text-align: left;\">Business position and TAM</h2><p style=\"text-align: left;\">Palantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/1b353ea026bd9a46752960b44d03afb5\" alt=\"Forrester Wave\" title=\"Forrester Wave\" tg-width=\"640\" tg-height=\"634\"/><span>Forrester Wave</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_740308643\" style=\"text-align: left;\">The many controversies of Karp</h2><p style=\"text-align: left;\">When I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.</p><p style=\"text-align: left;\">Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners &amp; losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.</p><h2 id=\"id_1430941454\" style=\"text-align: left;\">ESG and Glassdoor reviews</h2><p style=\"text-align: left;\">Despite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ff09024a6445988f355c059edd4d83b5\" alt=\"ESG rating\" title=\"ESG rating\" tg-width=\"640\" tg-height=\"552\"/><span>ESG rating</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/ed69bad5a5a9a8d18349c713a9135861\" alt=\"Glassdoor Ratings\" title=\"Glassdoor Ratings\" tg-width=\"640\" tg-height=\"494\"/><span>Glassdoor Ratings</span></p><p style=\"text-align: left;\"></p><h3 id=\"id_4125998872\" style=\"text-align: left;\">Other anecdotal evidence of a top in Palantir’s stock price:</h3><p style=\"text-align: left;\">Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&amp;P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/38089939e23649bf966afd9cf0635e7c\" alt=\"Insider buying selling\" title=\"Insider buying selling\" tg-width=\"640\" tg-height=\"282\"/><span>Insider buying selling</span></p><p style=\"text-align: left;\"></p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/20e97590ee62b9fc7529915c2c63e09b\" alt=\"stock chart\" title=\"stock chart\" tg-width=\"640\" tg-height=\"295\"/><span>stock chart</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3704377079\" style=\"text-align: left;\">Seasonality</h2><p style=\"text-align: left;\">Besides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/8dcd4a3cd16e8c17eed053e473903575\" alt=\"seasonality of share price moves\" title=\"seasonality of share price moves\" tg-width=\"640\" tg-height=\"233\"/><span>seasonality of share price moves</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_3959597449\" style=\"text-align: left;\">S&amp;P 500 “Inclusion Curse”</h2><p style=\"text-align: left;\">On 9/6/2024, S&amp;P Global announced that Palantir would join the S&amp;P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&amp;P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&amp;P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&amp;P 500 in Dec’20, to which the shares have underperformed since.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/51566a7b8ebb73341286941672c19b36\" alt=\"S&amp;P 500 inclusion study\" title=\"S&amp;P 500 inclusion study\" tg-width=\"640\" tg-height=\"292\"/><span>S&amp;P 500 inclusion study</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1115392343\" style=\"text-align: left;\">Valuation</h2><p style=\"text-align: left;\">Palantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/452f2e7c905620a59d8661bbae6fee2e\" alt=\"Valuation multiples\" title=\"Valuation multiples\" tg-width=\"640\" tg-height=\"375\"/><span>Valuation multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_1550243359\" style=\"text-align: left;\">The best valuation method</h2><p style=\"text-align: left;\">However, I would like to focus on <strong>EV/forward Revenues</strong> to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at <strong>28.6x</strong> is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.</p><p style=\"text-align: left;\">Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)</p><p style=\"text-align: left;\">Based on the above analysis, Palantir’s shares could drop to around <strong>$20/share</strong> or 40-45% from current levels during this Bull market, and far lower if there’s a correction.</p><p style=\"text-align: left;\"></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/02640f4bc9ec9be1dfa0c8a2e2eaf399\" alt=\"EV to Revenue multiples\" title=\"EV to Revenue multiples\" tg-width=\"640\" tg-height=\"329\"/><span>EV to Revenue multiples</span></p><p style=\"text-align: left;\"></p><h2 id=\"id_2642030854\" style=\"text-align: left;\">Conclusion:</h2><p style=\"text-align: left;\">I won&#39;t mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my &#34;<strong>Strong</strong> <strong>Sell”</strong> rating.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Palantir's Valuation Is A Lord Of The Rings Fantasy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPalantir's Valuation Is A Lord Of The Rings Fantasy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-02 11:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM....</p>\n\n<a href=\"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"PLTR":"Palantir Technologies Inc."},"source_url":"https://seekingalpha.com/article/4724450-palantir-s-valuation-is-lord-of-rings-fantasy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1152240833","content_text":"SummaryPalantir was one of my highest-ranking companies in a SaaS screen I created. The company’s “perfect on paper” with strong metrics, rapid revenue growth, rising margins and huge TAM.Qualitatively, Palantir has a huge moat, compelling narrative and clear mission-statement.The “black box” nature of the company’s services and its controversial CEO give me pause.Valuation measures are off-the-charts overvalued and its entry into the S&P 500 could be viewed as the “Inclusion Curse”.ThesisA few months back, I published an SA article entitled Screening for the Best SaaS Companies, in which I screened for the best SaaS companies out of a pool of 84 names. Palantir was the 10th highest-ranked company. The ranking was based on specialized metrics used by venture capitalists. This article’s goal is to concurrently convince you that Palantir is a great company but a terrible stock.IntroductionPalantir (NYSE:PLTR) is an AI optimized company that helps organizations collect, normalize and utilize all forms of data so that organizations can make decisions. The company operates under two platforms: Gotham (for governments) and Foundry (for businesses) and more recently introduced Apollo which is a system that manages both Gotham and Foundry. Palantir was named after the mystical seeing stones in Lord of the Rings.Given the controversies over Palantir’s business and its stock’s valuation, I was both intrigued and motivated to look into this. I rarely give “Sell” recommendations except when I see clear-cut accounting or business model issues. Palantir would be the exception!Does Palantir have the attributes of a premium-valued company?I’ll cut to the chase and say a “clear YES.” Palantir has several of these highly valued metrics, both qualitative and quantitative. Quantitatively they include:Access to a large and growing TAM (see Business Position section below) Strong Net Retention Rate (114% in 2Q’24, +400bps y/y) High gross margins and strong Unit Economics A history of earnings “beats & raises” High and growing Rule of 40 (Revenue growth + FCF Margin)Rule of 40Qualitatively premium companies have a:Compelling Narrative and Mission Statement Strong business position and high entry barriers Unique service and clear value proposition High Net Promotor Scores (NPS) albeit Palantir’s 33 isn’t the highest. Diversifying customer-base Manageable risks Visionary leadership.Recent financial performanceSeveral SA contributors (such as The Techie) did a superb job at analyzing Palantir’s recent earnings results, so I won’t repeat them here. The TLDR is that 2Q’24’s earnings were great – represented by a bottom & top-line “beat & raise.” In fact, revenue growth is accelerating (see chart below).GrowthThe Commercial business segment, which was introduced subsequent to Palantir’s government business, started gaining momentum in late 2023 and demonstrates continued expansion and diversification (see Table).growth of govt vs businessBusiness position and TAMPalantir has a strong business position (up and to the right) as measured by Forrester’s Wave for AI and Machine Learning. Palantir estimated (in its S-1 filing) its TAM to be huge at$120BN. However, that estimate was previous to ChatGPT. Now, analysts such as Wedbush’s Dan Ives think its TAM could hit$1 trillion. This is an even larger opportunity-set (meaning Palantir’s revenue scale vs its TAM) than Nvidia’s (NVDA)!Forrester WaveThe many controversies of KarpWhen I analyze companies and founders, I always seek out opposing opinions to test my thesis. Palantir is “perfect on paper” however, there is circumstantial and anecdotal information that worries me. Palantir and Karp remind me of Tesla (TSLA) and Musk: two highly controversial figures surrounded by controversies. Without one, there isn’t the other.Alex Karp has never shied away from controversy. He is extremely pro-American and has picked winners & losers in the geopolitical chess game. These aren’t opinions without consequences - Palantir has provided AI and data analytics services to the U.S. intelligence agencies and military. Palantir has also been criticized for helping ICE (Immigration and Custom Enforcement) deport immigrants. Given the “black box” nature of Palantir’s business, it is not known if privacy and human rights are being violated.ESG and Glassdoor reviewsDespite the recent blowback in ESG and socially responsible investing, I consider it a key factor in investing as it helps to authentically align my values with investments. I rely on MSCI’s ESG ratings, of which Palantir is rated “B” Laggard within the software industry (see chart). I not only weigh Glassdoor’s ratings to broadly determine the “Social” factor of companies but to determine quality of management and culture. Palantir’s Glassdoor CEO approval rating is amongst the lowest (65%) that I’ve ever seen within the software space (chart below). Even Morningstar, which rarely has an unkind thing to say about management, stated that it “lacks confidence in the executive team” given that Palantir “recklessly” lost $300MM in SPAC investments, whereby those portfolio companies would be expected to purchase Palantir’s services. Speaking of odd holdings, Palantir had invested $51MM in gold bars in 2021 just in case there was a “Black Swan” event.ESG ratingGlassdoor RatingsOther anecdotal evidence of a top in Palantir’s stock price:Parabolic moves in the stock price combined with overhead resistance (see chart) Heavy Insider Selling, especially from the CEO and founders (Peter Thiel and Alex Karp) Concerns from several SA contributors A seasonally weak period for Palantir as well as risk-assets in general (chart) The S&P 500 “Inclusion Curse” The CEO’s continued “shelling” of the company wherever he speaks.Insider buying sellingstock chartSeasonalityBesides trendlines, I’m a believer that sentiment and seasonality are proven contributors to a stock’s performance. Equities continue to remain in a seasonally weak period and Palantir has historically shown weakness during the Autumn period (see chart).seasonality of share price movesS&P 500 “Inclusion Curse”On 9/6/2024, S&P Global announced that Palantir would join the S&P 500 on 9/23/2024. Shares rose 7% in after-hours trading on excitement that passive asset managers would be required to purchase its shares. However, studies have shown that any positive stock price gains during said announcements tend to lose their effectiveness over time. A S&P Dow Jones LLC study shows this in the chart below. I would argue that the effect has intensified since the study’s 2021 cut-off date. It also follows that this underperformance is likely to intensify when the inclusion date is around the S&P 500’s all-time-highs (as is the case now). I think most readers recall the excitement about Tesla (TSLA) entering the S&P 500 in Dec’20, to which the shares have underperformed since.S&P 500 inclusion studyValuationPalantir’s shares are over-valued using a multitude of metrics as presented in the table below. If one were to normalize Palantir’s valuation, shares could decline about 80% - a huge amount ! (Note that I use an “Adjusted Overvaluation” metric to eliminate duplicates and outliers).Valuation multiplesThe best valuation methodHowever, I would like to focus on EV/forward Revenues to determine what premium PLTR’s shares should trade at. Palantir’s EV/forward Rev. multiple, at 28.6x is significantly above the 5.5x for the BVP NASDAQ Cloud Index. However, that 5.5x multiple is for the “average” company, not superstar Palantir. We would need to compare PLTR’s multiple with a regression line of forward revenue growth.Palantir shares trade above the regression line (28.6x versus the regression point of 12x) of revenue growth versus EV/forward Revenue multiples for the largest, best positioned SaaS companies as compiled by Bessemer Venture Partners. It is also above Meritech Capital’s SaaS regression line (regression point: 16x). (Note: it’s worth repeating that I not only compare PLTR to the average SaaS company, but to the largest premium names as well as those companies growing at a similar rate.)Based on the above analysis, Palantir’s shares could drop to around $20/share or 40-45% from current levels during this Bull market, and far lower if there’s a correction.EV to Revenue multiplesConclusion:I won't mince words. I have never had a good gut feeling about Palantir. It feels like a stock with a cult-like following. Now that I’ve done a deeper analysis, I stand by those feelings with concrete evidence and anecdotal findings. There are several top-performing SaaS companies to choose from. Palantir is the only company I would avoid, hence my \"Strong Sell” rating.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":6,"commentSize":3,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}