Stock analysis/investing
Here Are My Quick Analysis on Palantir Technologies Stock (June 2021)
19 June 2021
In this “Quick Analysis” series, I will share my general quick views on different types of companies (you can think of it as a simplified summary). These are just my views and are not meant to be financial advice and you do not have to agree, they are purely for educational purposes only (read our full disclaimer here). If I am vested in the company as of the time of writing, I will also disclose it.
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What Does Palantir Technologies Do?
source: Palantir
Palantir is a company that provides large organizations with a minimum of $500 million in revenue the ability to manage large data sets to gain insights and drive operational outcomes.
It was founded back in 2003 and its Gotham software was released in 2008. Gotham is focusing on the government intelligence and defense sector.
It was only in 2016 that Palantir came out with Foundry – a software platform with the intent to become the data operating system for companies and industries.
Palantir would be considered a fast-growth company with a yearly revenue growth rate of upwards of 40%.
Does Palantir Have A Competitive Advantage?
In my view, by starting work with the U.S. government through its Gotham software, they do have a reputation for trust. And that trust leads to brand recognition and helps its Foundry software too, which focuses more on commercial customers.
Source: Palantir Q420 presentation
Palantir’s Apollo system is differentiated in a way that it’s able to handle Mission Critical Information National Security Systems.
Apollo is the engine behind Gotham and Foundry, a continuous delivery system that allows Palantir customer to have their software run in purpose-built government or classified clouds that live separately from a standard public cloud.
They are aiming to go towards level 6 in the future which is for Classified Secret National Security Systems.
Source: Palantir Q420 presentation
So far, Palantir has been able to translate its technical prowess into solid business results which delivered nearly 50% revenue growth in 2020.
12 of the 21 deals signed in Q4 of 2020 were worth $10 million or more.
Overall, my view is that Palantir does have signs of some competitive advantage in terms of switching costs and branding. However, whether it is unassailable for the next 10 years or so is less clear to me.
How is The Management Quality of Palantir?
The CEO of the company, Alexander Karp co-founded Palantir with Stephen Cohen (current company president and secretary). Peter Thiel is the chairman of Palantir since 2003.
With three different share classes, class A (with one vote), class B (with 10 votes), and Class F (variable number of votes), it allows the founders the ability to control nearly 50% of the total voting power.
So far, the management has done a good job executing well with Palantir’s enviable position in the big data management industry, I think they are pretty decent so far.
How Is The Valuation Range For Palantir Like?
Source: Ycharts
Based on a simple EV to Revenue, Palantir’s valuation is on the high side. Palantir’s EV to Revenue is at 37.87 as of 19 June 2021. Although it is lower than its historical EV to Revenue peak at around 56 back in January 2021, on absolute terms, it is still high for me.
Simply put, even if Palantir’s revenue doubled, its EV to Revenue will still be around the 18-19 range.
In Conclusion
I like Palantir’s business quality and management’s execution so far. It is a pretty special company.
However, personally, I’d like to wait for a bigger margin of safety before I will consider initiating a stake.
For now, it is in my watchlist of quality companies I’d like to own one day.
Disclaimer:
The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.
Important: Please read our full disclaimer.
Disclosure:
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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Chris Lee Susanto
Founder, investment blogger, and editor of this value investing x business-like stock investing blog Re-ThinkWealth.com.
Chris is a big proponent of business-like stock investing. He invests in companies where there is value to be found, be it a turnaround, depressed, value, or quality growth company (compounders). He either buys the stock outright or he profits through selling put or selling call options – or buying call options (buying and selling options are especially dangerous for those who do not know how to properly execute it).
Some of the places where Chris has been invited to speak or have added value as a mentor or writer includes Singapore Polytechnic, SMU Institute of Innovation and Entrepreneurship (IIE), Dollars and Sense, The New Savvy, Value Walk Blog, Investment Moats, NUS Tembusu College, NUS Investment Society, CGS-CIMB Singapore, Singapore Financial Conference by NTU IIC, The Financial Coconut Podcast, Money FM 89.3 and Internationally in Myanmar.
Being a full-time investor, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run.
As of now, Chris’s focus is on setting up a MAS Licensed Fund in the future with the goal to beat the market over the long run. Feel free to join his FREE investment telegram channel here.
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