Palantir Is Worth More Thanks to Forecast Free Cash Flow

Palantir (NYSE:PLTR), the government and corporate data analysis firm, gave an upbeat outlook for 2021 with its 2020 earnings. Palantir’s $322 million in revenue for the quarter was up 40% from a year ago. The company also forecast that 5-year forward revenues would be almost four times greater at $4 billion, up from $1.1 billion in 2020. As a result, I estimate that PLTR stock is worth at least $31.15, or 16% more than its present price as of March 15.

Palantir Technologies (PLTR) headquarters
Source: Sundry Photography /

I described in my previous article on Palantir last month how I derived this valuation. It is based on a projection of the company’s robust free cash flow over the next five years. I used a margin analysis based on the company’s revenue forecast.

This works out to $49.6 billion. After adding in an additional $7.66 billion in discounted future accumulated cash, I believe Palantir is worth $57 billion. That works out to $31.15 per share or 16% above the March 15 price of $26.79.

What Analysts Now Say About Palantir

Barron’s magazine rightly points out that Wall Street seems divided over the valuation for Palantir. Some say the results were too heavily oriented to government contract work. It works out to 59% of gross revenues. Some feel that is too heavy a concentration in one type of customer.

Others, however, like the new $4 billion 5-year revenue target. This implies a 30% annual growth rate, which should feed through to its valuation going forward. This is what the Goldman Sachs analyst Christopher Merwin thinks about PLTR stock. His target price is $34, which is higher than my $31 price target.

But others, like William Blair analyst Kamil Mielczarek, think the 30% growth rate in software sales is overly optimistic. He lowered his recommendation to “underperform” from “market perform.”

Moreover, Citigroup analyst Tyler Radke believes PLTR stock is worth just $15, according to Barron’s magazine. Now that the company’s insider lockup on sales has passed, and insiders are now selling some of their shares, he believes PLTR stock will fall much lower.

Moreover, TipRanks reports that seven analysts have an average target of $25.83, representing a potential drop of 4% from March 15. In addition, says eight analysts’ target price averages $23.57.

Basically, other analysts are not very sanguine about the upside prospects for PLTR stock.

What to Do With PLTR Stock

As it stands now, PLTR stock is actually quite expensive at 33 times forecast sales for 2021 and 25.6 times next year’s sales. My projection of the stock’s value at $31.15 reflects its powerful free cash flow generation. So far, the company is not producing free cash flow.

Therefore, there is a lot of risk in this valuation. We can put some probabilities on the potential outcomes for PLTR stock and then derive an expected return.

For example, let’s project that there is at least a 50% likelihood that PLTR stock will be FCF profitable and the stock will hit $35 within the next three years. That represents a potential return of 30.6%, and an expected return of 15.3%.

Now to fill out the probability estimates, let’s say there is a 30% chance the stock will fall 20% to $21.43 over the same period. That results in an expected return of negative 6% (i.e., 30% x -20% = -6%). Lastly, let’s say that there is a 20% chance the stock stays flat or rises just 10%. That is an expected return of 2%.

Now we have all three scenarios probabilities add up to 100%, and so we can add up the expected returns. This means that we add +15.3% in the first scenario to a negative 6% expected return in the second, and +2.0% in the third scenario. That works out a total expected return of 19.3%.

This means we can expect, based on our best outcomes analysis, that PLTR stock will reach $31.96 within three years. Note that this is close to our FCF analysis projection of $31.15. So our analysis results in a price projection of between $31.15 to $31.96 for PLTR stock, or between 16% and 19.3% higher than the March 15 price.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.

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