It’s been a little over two months since Palantir (NYSE:PLTR) did a direct listing on the New York Stock Exchange. Since Sep. 30, the big data company’s stock is up 231.4% through Dec. 3 from its reference price of $7.25. If it keeps up the pace, Palantir stock is on track to generate a first-year return of 1,386%.
It can’t happen, can it? It’s crazy to think that any stock could jump 231% in two months, but that’s exactly what the tech company co-founded by Peter Thiel has delivered for pre-IPO and post-IPO investors.
Let’s imagine for a second that Palantir grows at such a rate over the next nine months. What would an investment in Palantir look like?
Here are my thoughts.
IPO Valuation of Palantir Stock
Based on approximately 2.3 billion shares outstanding at the IPO and a $7.25 reference price, Palantir had a market capitalization of $16.4 billion. It closed its first day of trading on Sep. 30 at $9.73 a share. That brought the market value up to $22.4 billion. Back out $1.2 billion in net debt, and had an enterprise value of $21.2 billion at the beginning of October.
At the end of September, Palantir had $1.0 billion in trailing 12-month sales. That’s 21 times its enterprise value. You can get Apple (NASDAQ:AAPL) at an EV/Sales multiple of slightly less than eight, or 62% less.
Of course, we’re not done.
Palantir reported its first quarter as a public company on Nov. 13. As of the end of September, it had a total of 1.73 billion shares outstanding representing three classes of shares: Class A, Class B, and Class F. The Class A and Class B shares have one vote and 10 votes, respectively. The Class F shares have a variable amount of votes that let the founders control up to 49.999999%.
So, its market cap today, based on a $24 share price as I write this, is $41.5 billion, while its enterprise value is $39.9 billion (less $1.6 billion in net cash). I’m using the number of outstanding shares in the 10-Q. However, Morningstar gives it a market cap of $45.1 billion and an enterprise value of $43.5 billion, so at least we’re both on the same page about the $1.6 billion in net cash.
Buying Palantir Today?
So, if you were to buy shares of Palantir today, you’d be paying at least 42 times sales. Its third-quarter results provided sales guidance for the full-year in 2020 of $1.070 billion to $1.072 billion, 44% higher than a year earlier.
Analysts estimate that 2021 revenue will be $1.41 billion, 32% higher than in 2020. So, on a forward basis, you’d be paying 29 times sales.
That’s not so bad until you remember that you can get the largest public company on the planet for six times Apple’s 2022 sales estimate of $332.1 billion, a 5.3% increase over 2021.
It’s one thing to pay a greater multiple for growth, but five times greater? That’s a bit rich.
The Fear of Missing Out
In early November, I weighed in on Palantir for the first time. I wondered if PLTR was the best tech bet around $10. I was generally favorable about the money-losing big-data stock.
“I don’t think you can complain about the company’s growth over the past two years. In 2019, revenues grew 24.7% to $742.6 million from $595.4 million a year earlier. In the six months ended June 30, its revenues jumped 49.1%, almost double the growth rate for all of 2019,” I wrote on Nov. 3.
“Based on the fact it has a fairly stable level of operating expenses around $1 billion, a 25% year-over-year growth rate in sales over the next couple of years, as [InvestorPlace contributor Matt ] McCall stated, should get it to an operating profit for fiscal 2022.”
In the end, I hedged my bet a tad, suggesting investors might wait to see if they could get some in single digits. In hindsight, we know this never happened, shooting as high as $33.50 before losing altitude at the end of the month and into December.
I get the fear of missing out.
Imagine if it continues to double every month for the next nine months through September 2021? Palantir could be the largest stock on the planet. It won’t be, but like buying a lottery ticket, it’s fun to dream.
Looking back at its action over the past two months, it’s hard to believe you could still buy Palantir stock for less than $10 on its first day of trading. That astounds me.
At this point, if you can afford to lose your investment and truly fear missing out, I’d buy half a position now and embrace the chance to buy more in the teens at some point in the next few months.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.