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Palantr (NYSE: PLTR ) hit the stock markets in September 2020 at $10 per share. In January 2021, Palantir’s stock price rose to $45. This is an all-time high. It has since fallen to $7.8 as of this writing.
Any investor who bought Palantir so far must be disappointed. But since I can currently buy shares in the company below the IPO price, I think it’s worth considering if I add it to my portfolio.
What I love about the Palantir stock
Palantir builds platforms to integrate, manage, secure and analyze data. It started 17 years ago by providing counter-terrorism intelligence to the US government. Now, the company boasts contracts with a number of government agencies, including the CIA, the FBI and, most recently, the UK’s NHS. Today, 58 percent of revenue comes from government sources. The rest comes unsurprisingly from the private business sector.
While it’s only been around for a while, Palantir has grown revenue at an impressive 37 percent per year on average from 2018 to 2021. According to the latest quarterly results, government revenue grew by 13 percent, while business revenue grew by 46 percent year-on-year.
I have a concern
Despite its impressive growth, Palantir has never been profitable. The company He expects that to change by 2025. While it’s unusual to see large stock-option grants in the years following an IPO, Palantir’s generosity to its top executives is unusual. In the year It granted $1.27 billion in stock options in 2020, surpassing the company’s revenue that year.
Now, the company relies on options rather than salary to reward its leadership, and it can be said that giving skin in the game is a good thing. However, as of 2020, the company’s top executives and board members have sold $1.9 billion worth of stock. That cannot be considered a vote of confidence in the company’s future share price direction.
Then I have some concerns about the expansion of the company’s product. He has engaged his engineers with his customers to better understand their needs and adapt the platforms to their needs. This is good for the customer and the relationship. But this is not the work of turnkey software. Each new contract requires new engineers unless completed one at a time. That sounds expensive and should squeeze margins, but you can’t look at Palantir’s accounts and exclude stock-based compensation expenses, which is weird.
Now that concern has been somewhat mitigated by the fall in Palantir’s stock price. A price-to-sales ratio of 9 is more in line with the kind of growth engine I see driving the company than it once was. Let’s say that’s more in line with Young. Microsoftselling packaged software packages out of the box.
Should I add Palantir stock to my portfolio?
Despite the impressive growth, I’m not convinced by Palantir’s stock even at this low price. I want to see how costs change when that stock-based compensation expense is reduced, and it should be. I’d like to see the company convincingly turn around that 2025 profitability target. It takes time to sort out my anxiety. So I won’t buy a Palantir for Stocks and Shares ISA in 2022.