DCF on Palantir to determine the future value of the company
Trading Strategies
September 12, 2024
To assess whether Palantir (PLTR) could hit $100 per share by 2030, we need to conduct a thorough analysis based on the company's earnings, revenue growth, and valuation using a Discounted Cash Flow (DCF) model. This type of analysis involves projecting Palantir’s future revenue, profitability, and free cash flow, then discounting these future cash flows to the present value to estimate the intrinsic value of the stock.
If you're not into doing deep financial analysis, there's a much easier way to get great returns from Palantir and other companies.
As of the most recent earnings report, Palantir Technologies (PLTR) has shown solid revenue growth driven by both government and commercial contracts. Key financial metrics for Palantir in 2023 are as follows:
Palantir has consistently grown its revenue by about 20-30% annually over the last few years. The company is focusing on expanding its commercial segment while maintaining strong government contracts, which have been the primary revenue drivers. This is one reason it was included in the S&P 500 index.
To forecast Palantir's potential share price in 2030, we need to project the company’s revenue and profitability out to that year. Let’s assume three potential growth scenarios: Bull Case, Base Case, and Bear Case.
Using these growth rates, we can project Palantir’s revenue out to 2030.
Next, we need to estimate Palantir's free cash flow, which is a key input for a DCF analysis. We'll assume that Palantir's Free Cash Flow (FCF) margin will improve as the company scales, reaching 30% by 2030 due to operational efficiencies and increased profitability.
To calculate the intrinsic value of Palantir's stock, we discount the projected FCF back to the present value using a Discount Rate (typically the Weighted Average Cost of Capital, WACC). Given Palantir’s growth stage and risk profile, a reasonable discount rate could be 10%.
The formula to discount future cash flows is:
Present Value=Future Cash Flow(1+Discount Rate)Number of Years\text{Present Value} = \frac{\text{Future Cash Flow}}{(1 + \text{Discount Rate})^{\text{Number of Years}}}Present Value=(1+Discount Rate)Number of YearsFuture Cash Flow
Applying this formula to each year’s cash flow and summing them gives the Net Present Value (NPV) of future free cash flows.
For the terminal value, we assume a perpetual growth rate of 3% (conservative growth rate after 2030) and apply the Gordon Growth Model:
Terminal Value=FCF in 2030×(1+Growth Rate)(Discount Rate−Growth Rate)\text{Terminal Value} = \frac{\text{FCF in 2030} \times (1 + \text{Growth Rate})}{(\text{Discount Rate} - \text{Growth Rate})}Terminal Value=(Discount Rate−Growth Rate)FCF in 2030×(1+Growth Rate)
Calculating this for each scenario:
We discount the terminal value back to the present value using the same discount rate.
By summing the NPV of projected FCF and the discounted terminal value, we get the Enterprise Value (EV). After adjusting for net debt or cash, we arrive at the Equity Value. Finally, dividing by the number of shares outstanding gives us the Intrinsic Value Per Share.
Based on our DCF analysis:
While hitting $100 per share by 2030 is not impossible, it would require Palantir to achieve or exceed its highest growth expectations (Bull Case) and maintain substantial profitability improvements. Factors such as market expansion, product adoption, competition, and broader economic conditions will play a critical role in determining whether this price target is achievable.
No. The real question is, how can I make 188% on stocks - this is the difference between $100 and the current market price. It doesn’t have to be Palantir. But let’s use Palantir as an example.
To make 188%, you don’t have to hold Palantir stock for 6 years. You can trade the stock, based on events flagged by AI in a much shorter time.
On March 9, 2023, LevelFields’ AI flagged a bullish breakout in Palantir stock, and additional bullish events after that. In the 18 months from that point until 9/11/24, Palantir stock rose +345%. It didn’t require doing rigorous discounted cash flows like above. It just relied on bullish catalysts of the right variety to determine the stock was about to run.
Holding stocks long-term works under the right conditions: very long time horizons (20+ years) and no need to access the capital. But few can wait this long and even fewer could predict accurately how a stock will perform 20 years from now because there are too many variables. Politics, regulation, competition, wars, weather, monetary policy, inflation, etc. can all adversely influence a company’s success.
In 2002, GE was the largest company in the S&P 500. Twenty years later, the stock was still below its 2002 price. Things change, and they are changing faster than ever now thanks to the speed at which information moves and that stocks can be traded.
A better strategy than holding stocks like Palantir for 5, 10, 20 or 30 years, is to take advantage of market inefficiencies and catalysts to buy stocks cheap and sell high. And it’s not just us that does this - Warren Buffet does it too. Why else would he have just sold Apple and Bank of America is massive amounts?
In the case of Palantir, those who bought in 2021 would still have unrealized losses holding onto Palantir 3 years later.
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Palantir Technologies is a data analytics and software company that specializes in providing platforms for integrating, managing, and analyzing large sets of data. The company develops and sells three primary platforms:
Palantir helps organizations make better decisions by transforming complex data into actionable intelligence.
Palantir initially built its reputation by working with government agencies, such as the CIA, FBI, and other intelligence agencies, by providing tools to combat terrorism and facilitate law enforcement activities. The company has expanded into various industries, including finance, healthcare, and energy, to help companies manage, analyze, and derive insights from their data. Palantir's software has been used for everything from fraud detection and risk management to supply chain optimization and medical research.
Yes, the US military uses Palantir. The company has secured several contracts with the US Department of Defense and other military branches to provide data analytics software for various purposes, such as:
Palantir's Gotham platform, in particular, is widely used by the US military and other government agencies for these purposes.
Palantir's biggest competitors include companies that provide data analytics, big data, and business intelligence solutions. Some of the major competitors are:
These companies compete with Palantir in the areas of data integration, analytics, machine learning, and artificial intelligence.
Yes, a number of analysts have attempted to determine the value of Palantir stock in the near term.
CNN business now includes a 1-year forecast of Palantir's stock, with an implied median price target on Palantir of $28 per share, below current levels.
CoinCodex has a number of price forecasts for Palantir stock. Many of their forecasts are significantly higher. By 2030, CoinCodex's price target on Palantir exceeds $250 per share. Their analysis is not based on DCF modeling, but rather based on projecting historical price moves forward.
Zacks Investment Research also supplies price and earnings estimates for Palantir's stock price. While they don't project the price out to 2030, nor do they project a $100 stock price target on Palantir, their earnings estimates can be useful for analyzing the company's future growth prospects.
Join LevelFields now to be the first to know about events that affect stock prices and uncover unique investment opportunities. Choose from events, view price reactions, and set event alerts with our AI-powered platform. Don't miss out on daily opportunities from 6,300 companies monitored 24/7. Act on facts, not opinions, and let LevelFields help you become a better trader.