Monday, 15 August 2022

Palantir- Falling Margin and Slowing Revenue Growth

 In my previous article, I had indicated Palantir was a stock worth $18 at a valuation of (i) 30% revenue growth, 27% margin and 10% risk free rate.

However, based on the past two quarters of financial results, Palantir's growth story is not true and margin is decreasing in a bad way. This is due to the company paying its employees a large salary which is faster than growth. Palantir has to control its margin because it is destroying the valuation of the company.

No Longer: 30% growth, 27% margin, 0.48 EPS in 2025

Palantir has guided for 27% revenue growth and operating at 23% margin. This kills off future profitability. I am now guiding for a more pessimistic 20% revenue growth with a 17% margin.  This means expected EPS is now 0.24 in 2025.

Maintaining long term growth, a 50 times P/E is still applied with 10% risk free discount rate and this points to a $9.12 fair present value 

Moat is There but Company's Cost Management is Terrible

I still believe in Palantir's moat for it has created a good product. This is thanks to its CEO's innovation. However, in terms of cost management, the CEO is doing a terrible job. The value destruction has been that its margins have fallen off a cliff 

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