Palantir: Diamond In The Rough

Seeking Alpha2023-04-24

SummaryAt a stage when most companies are burdened by debt, Palantir has strong cash, cash flow, and zero debt.The total addressable market remains attractive and is likely expanding.PLTR stock is ...

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Hangen
·2023-04-25
Lucky 7 coming...
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The general market euphoria coupled with excitement around the company's prospects and leadership sent the stock soaring initially. Reality then set in from both macro and company perspectives. The stock lost more than 85% from its all-time high of $39 to trade near $6 towards the end of 2022. But then, to continue the roller coaster, the stock is up nearly 30% YTD. Where does the stock go from here? I don't know exactly and I doubt anyone else does. But this article provides a few reasons to help investors with their decisions and concludes with my thoughts on how I am planning to play Palantir here. Let us get into the details.Short to Medium Term EarningsPredicting the short term direction of any stock is a fool's errand and this applies even more for a young and volatile stock like Palantir. Nonetheless, it is interesting to see the upward tick in Earnings Per Share (\"EPS\") estimates for Palantir's 2023 and 2024 with the numbers going up 25% and 14% respectively. If these numbers hold true, Palantir is trading at a forward multiple of 32 based on 2024's EPS estimates.PLTR Estimates (Yahoo Finance)Seeking Alpha confirms this upward EPS revision trend as shown below, while the revenue estimates have been trending down.PLTR Revisions (Seekkingalpha.com)TechnicalsSticking with the short to medium term indicators, Palantir's technical set up is looking solid while not too exciting. The stock is trading a hair above the 200-Day moving average and the fact that all the commonly used moving averages are within 10% of each other says the stock is establishing a fairly strong base around the $8 region.The stock's Relative Strength Index (\"RSI\") is a hair below 50 and that suggests there is plenty of room to the upside if the stock manages to break above the current trading range. The upcoming earnings report on May 8th is likely to determine whether the stock's holding pattern around $8 acts as the launch pad for a run higher or is breached.PLTR Moving Avgs (Barchart.com)PLTR RSI (aiolux.com)Strong Balance SheetDespite being a public company for a little more than two years, Palantir has the following enviable traits:Cash on hand makes up 15% of the company's market cap. That is impressive for any company and even more so a company in its early growth phase where expenses typically outweigh a company's ability to bring in and retain cash.Palantir has zero long term debt. Yes, you read that right. Zero. And it has been that way for nearly two years now, which is almost as long as it has been a public company. This shows their confidence in their ability to raise cash through operations and their operational discipline.Since September 2021, Palantir's quarterly Free Cash Flow (\"FCF\") has been range bound between $200 Million and $300 Million as shown below, with an average of $231 Million/Qtr. Once again, the consistency shown this early in the game is encouraging.PLTR Debt (YCharts.com)PLTR FCF (Ycharts.com)Long Term Growth ProspectsEarnings are expected to grow at 70%/yr for the next five years. That gives the stock a Peter Lynch-esque Price-Earnings/Growth (\"PEG\") of 0.57. Granted that growth companies like Palantir tend to have wide fluctuations between expectations and reality, and sometimes in even expectations across quarters. But it is easy to see why earnings estimates are so optimistic for Palantir given the ever increasing focus on data analytics and security.The company's first profitable quarter (on a GAAP basis) did not get the attention it deserves, even though the stock popped close to 20% as an initial reaction. With a Total Addressable Market (\"TAM\") of at least $119 Billion, it is safe to say the company is still scratching the surface. Far more aggressive projections call for the \"Big Data Analytics\" market to reach $650 Billion by 2029. Palantir is also smartly leveraging its expertise and contacts. For example, the recent news that its partnership with Microsoft Corporation (MSFT) is now expanding into public sector fits perfectly given the company's strong footing in the Government space already.What's my play?Frequent readers of my article know I love selling puts at lower strike prices on stocks I'd like to own. Palantir is one such name that I've sold puts in the past (did not get assigned though). I am little wary of buying after a 30% run YTD and hence, I am considering selling the $7 put expiring July 21st, 2023. As of this writing, Mr. Market is willing to pay a premium of 35 cents per share, which would amount to $35 for every contract (100 shares) I am willing to sell.Should I execute this put:If I do get assigned, I will be buying Palantir stock at a 15% discount compared to the current market price.If I don't get assigned, I will be getting a 5% return for my willingness to buy at a lower price. That is, $35 for setting aside $700 (per contract) in a cash-secured put transaction.There are some risks to be aware of if you plan to use this strategy. For example,Palantir will report at least one earnings before this option chain expires and things are bound to get volatile around earnings.On weakness, Palantir, or any stock for that matter, may go well below your strike price. In this case, you will be forced to buy at $7 irrespective of the market price.ConclusionMy conviction on Palantir is based on where the World at large is heading. The need for security, privacy, and data analytics will increase at least for the next decade. Obviously, this also means there will be more players in the market but Palantir's existing relationship and reputation will serve them well. In addition, I am mighty impressed by their execution in the first two years as a public company, including but not limited to:Staying debt freeBuilding up cash reservesStriking public and private sector dealsScoring a profitable quarterThe ride will be bumpy no doubt but I believe those with real long-term discipline and conviction will reap the deserved rewards by investing in Palantir here, irrespective of buying in the open market at $8 or through selling puts like the one I am considering.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9947997277,"gmtCreate":1682432150699,"gmtModify":1682432155883,"author":{"id":"4087724962016220","authorId":"4087724962016220","name":"Hangen","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/f84859c65fc2d7681e28f6b8e9b0535a","crmLevel":4,"crmLevelSwitch":0,"idStr":"4087724962016220","authorIdStr":"4087724962016220"},"htmlText":"Lucky 7 coming...","listText":"Lucky 7 coming...","text":"Lucky 7 coming...","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947997277","repostId":1194111413,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":38,"commentSize":1,"repostSize":1,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false}}