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Here’s why PLTR stock is plunging

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When bullish investors nicknamed Palantize (NYSE:PLTR) as next Metaplatforms (NASDAQ:Facebook), the comparison only told half the story. The PLTR stock has a very long road to earnings. The business will win small contracts, and then customers will increase their investment as the business relationship grows.

Source: Ascannio / Shutterstock.com

Since Nasdaq weakened in November 2021, the PLTR stock plunged with the index. When could the downtrend end?

Team failed to raise PLTR stock

To start the year, Palantir and Hyundai Heavy Industries announced a team. The companies are expected to build a big data engineering platform that will handle HHI’s core businesses, including shipbuilding and offshore engineering. Palantir did not provide any financial details. As a joint venture, the partnership implies that both companies will incur costs. Palantir will not bring in any revenue from the platform until it is operational.

Ki-sun Chung, general manager of HHI, said the partnership “will significantly improve the competitiveness of the group’s core business.” It signals an inflection point with how HHI staff will use data. PLTR investors will need to be patient. The deal expands Palantir’s potential market. As HHI relies more on the platform, Palantir will have the ability to sell new products and features.

Last month, Palantir announced a partnership with Dew point therapy. Dewpoint is a biomolecular condensate company. It will use Palantir’s Foundry platform to help Dewpoint discover treatments and cures for diseases.

Strong Q3/2021 results

In the third quarter, Palantir reported revenue growth of 36% year-on-year to $392 million. The company touted its 34 net new customer additions in the quarter, a 46% sequential increase (quarterly) in the number of business customers, and 54 deals worth at least $1 million in the quarter.

Problems arise when shareholders consider adjusted free cash flow of $320 million and adjusted operating profit of $349 million. As shown in the appendix, Palantir incurred $86.29 million in taxes related to stock-based compensation. It lost $352.1 million in operations, but added back $611.3 million in stock-based compensation cumulatively from Q1 to Q3/2021.

During his conference call, COO Shyam Sankar said the company expects revenue to grow by 40% for the full year. Product innovation, distribution efficiency and a strong sales team will increase sales. Investors can expect the trading momentum to continue this year, with the 150 new sellers improving their performance.

Just value

On Wall Street, analysts are disconcertingly bearish on Palantir. The average price target is $22.14 (per Tipranks). Still, half of analysts rate the stock as a “sell”. Simplywall.st’s the number calculator is even more bearish. The site calculated a fair value of $11.32.

Readers can ignore the price targets above and build a financial model instead. Propose revenue growth scenarios over the next five years. In this discounted cash flow revenue outflow model, assume a terminal multiple of 6.5 times. At a discount rate of 7.5%, PLTR shares are worth approximately $15.50.

Metric Vary Conclusion
Discount rate 8.0% – 7.0% 7.50%
Terminal revenue multiple 6.1x – 6.8x 6.5x
Just value $14.60 – $16.27 $15.42

Finbox data

The revenue growth forecasts below underestimate Palantir’s future potential. The company expects strong revenue in the fourth quarter and revenue growth of 40% for 2021, or $1.5 billion.

(USD in millions) Entrance screenings
Exercises ending 20-Dec December 21 December 22 December 23 December 24 December 25th
Income 1,093 1,527 2,061 2,783 3,757 4,910
% Growth 47.20% 39.80% 35.00% 35.00% 35.00% 30.70%
EBITDA -1,159 459 565 793 1,315 1,620
% of sales -106.10% 30.10% 27.40% 28.50% 35.00% 33.00%

Finbox data

In the model above, assume revenue growth slows to 35% this year and 30% by FY2025. Palantir has won numerous government, military, and healthcare organization contracts over the last year.

Its Foundry module will also appeal to large banks. Look for this software giant to report gains with European retail banks. These customers will need to integrate archaic enterprise resource planning solutions. They will need Palantir solutions to better understand their customers’ data.

As of the date of publication, Chris Lau had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Chris Lau is a contributing author for InvestorPlace.com and many other financial sites. Chris has over 20 years of stock market investing experience and leads the do-it-yourself value investing market on Seeking Alpha. He shares his stock picks so readers get original insights that help improve investment returns.

Here’s why PLTR stock is plunging

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