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Palantir shares. Another very popular video we make. The reason is that then that guy who is from Russia or Israel, wherever he is from . Um, this idiot financial blogger Tom Nash, he was touting Palantir at $45 a share, calling himself a true value investor. And I said I would give about five bucks for them.
And then it was said rather carelessly. Now the price has dropped. Last week they reported earnings that beat expectations by one cent. We actually became interested in them when the price dropped to $6 or $7 a share . Palantir still has issues that concern us. One of them is stock compensation. Another is how they report their profits.
They have comfortably exceeded the forecast by one cent each quarter for the past two quarters. And in the previous quarter, this excess was very strange. The point is , are we right about this one cent? Does this raise doubts? I don't know. But for me, it's enough to take a step back and say, " Wait a minute." The other thing—well, I didn't mean to be funny, but their CEO Karp, if I saw this guy, I would be like, "Wait, what's going on here?" So, we're going to take a look at Palantir to see if it's still worthwhile and at what price.
The pun is intentional. Good point. Mo, could you tell us about the bullish and bearish scenarios for Palantir, because I think we need that, because I like the growth potential of Palantir and the market they operate in. Continue. Okay, that's a bullish scenario, but remember what we just said. This makes us worried.
Stock compensation decreased by 23%. Which is great. That's good, but the way they do it is still concerning. They are paying off their liabilities, and accounts payable has decreased by 90%. Yes, because you know why? They have so much cash on hand. That's what I like about this company. They have billions of dollars on hand, which is significantly more than their debts.
It's hard to bankrupt a business with such a position. And that's exactly what I like about it. M-hm. Interest income of 20.85 million compared to 547,000 due to the company investing its cash in high-yielding risk-free assets. Perfectly. So this is the bullish side. This is the bullish side. So guys, the only thing I do n't like, even though I believe in it and we look at the numbers, if you take away the jump in their interest income, I do n't think they made any money at all last quarter.
Now the cash flow has become phenomenal. And that's exactly what I want to talk about here. How many consecutive quarters has cash flow been positive ? 1 2 3 4 5 6 7 8 nine consecutive quarters of positive cash flow. Guys, for me, cash flow is much more important than anything else, than profits. I mean, profits can be affected by all these rules, manipulations.
Cash flow is harder to manipulate. Can this still be done? Of course, of course, you can. I've read books on manipulation and you'll see that it can be faked, but it's harder to do. Now, stock payouts have decreased significantly, but they still exist. Let's look at their balance sheet, because that's what I really want to focus on here.
Their total current assets are 3.26 billion. 2.9 of them are cash and short-term investments. Total liabilities— $880 million. So they can just take their cash 2.9 and still be left with $2 billion, plus all the accounts receivable , restricted cash and everything else. This is simply incredible. So, when you buy a company with a market cap of 19 billion, look at this enterprise value—17.3.
Look at this difference. Because they have no debt and plenty of cash on hand. They have a lot of other problems right now, don't they? Look at their negative PE ratio. Look at their profitability. Negative. Five-year profitability. Very negative. But look at that gross margin. 78.7%. Microsoft has 68%.
Well, I will say that this gross margin is 78.7. One thing I will say about Palantir: they are trying to get more and more clients, which means their average contract size will decrease. So the question is, will this gross margin decline? The great news is that even at 68%, Microsoft's net profit margin is still 30%.
They can still make very high net margins because it's a software business, and Palantir's job is essentially to figure out how to use data to solve people's problems, right? That's their basic premise, right? And they have a lot of great sales, a great sales department, and so on. So, Mo, look at these eight pillars right here.
Yes, it's a bit messy. A little messy. A little messy. Got it. You know, we don't have a five-year ROIC because there's not enough data, but focus on the good. And cash flow is an important thing. Cash flow growth is very important. They have positive cash flow over the last... So their cash flow over the last 12 months was 340 million.
Now, this ratio is very high. Divide 19 billion by 346. How much is that? 19.3 divided by 346. So it's about 50 or something, 58, 55 or something like that. I don't know the exact number, but it's high. Now remember, it's okay if it's high, if you can justify it with a very high growth rate and a high return on investment.
This company is growing very rapidly, on a large scale. I mean, much higher than 20-30 %. Let's take a look right here. Let's take a look at their quarterly income statement . They made 525 million last quarter. Same quarter last year—446. This is almost a 20% increase. That's a serious level of growth, right?
Yes. OK. It helps a lot, if they can do this for the next 5 or 10 years, that's great . Continue. What I don't like: They had 95 million shares outstanding in 2020. Now there are 2.1 billion of them. That's more than double. This is the main problem with stock-based payments and fast-growing technology companies.
This attracts talent, but costs investors money. Yes. Now let's move on to analysts' forecasts . Oh, wow. Oh, look at this. I'm actually surprised by this. I thought EPS would be significantly higher in 5 years . Yes, me too. Guys. This confuses me. So, even at today's prices, it's still selling at a P/E ratio of 20 in 5 years, four years from now.
This should be a cause for concern. Let's look at revenue growth. Wow, massive revenue growth. So, that's strange. Very high gross margin. Analysts expect huge revenue growth in five years, but profits should be much lower. This surprises me very much. Very, very surprising. What do you think, Mo? Honestly, since we started looking at it, aside from the cash flow part, it's almost in the " too complicated" category.
I want to see more neighborhoods. Maybe she'll get out of that category, but right now there are too many things I'm looking at and thinking about... So I don't think it's too difficult for me . For me, the question is , what was it? Do you want more data to appear? Me, I just wish it was cheaper because I'm looking at this thing.
So if it fell to $4, would you be, say, down to $3. Let's make it extremely cheap. Would you become a buyer even with the questions you have ? That's why I would. Good. At $3, their market capitalization would be six billion. Mhm. If they had $2 billion in net cash, we would effectively be buying a company for $4 billion that generated $346 million in free cash flow last year with amazing growth potential.
Okay. I just wanted to say, would your concern remain if it became extremely cheap? That said , yes, stock compensation is always a cause for concern because they will try to lure people in with more and more stock options. If I knew the company was going to say, “ Look, we’re done issuing a billion shares to everyone,” I really think Palantir would become a very, very attractive business at some point .
The question is at what point. They've been beating expectations by one cent for the last two quarters, I need to understand that, because after all, that's what they're talking about when they discuss the quality of management. Do they manipulate the numbers to consistently exceed expectations, or do they do something that just leaves you wondering what the hell is going on?
Analysts' forecasts should still be treated with skepticism, but I'm concerned that they have $5 billion and 48 cents in profit. This is like, damn it. But who knows? Let's run this through a stock analysis tool, because that's the really important part here. Now regarding the analysis tool, I'll still run it for 20 years, but I really want Mo to run it for 10 years.
I think it's the 10-year analysis that's worth focusing on, as Palantir may be acquired someday. I don't know what that will look like, but I really think Palantir is one of the leading companies in data analytics and using data to solve problems. This is great. And I'm sure AI will be part of that.
I even hate saying the word AI. But guys, remember, if you like our software, $7 for 7 days. You get everything you've seen so far. You get every tool here, plus a real estate calculator that's coming soon, and it will be limited upon release. It will only be for levels that specifically pay for the real estate calculator.
But if you subscribe now, you'll get it in the future, even when it comes out. And, uh , it's $7 for seven days to try it out. That's $1 a day. I'm serious, $1 a day. Good. And you get community. There are thousands of people here. Let's talk about Palantir, because we talk about it a lot in the community chat, because it's become something of a battle between us and that other channel, right?
They said, "Do n't you understand?" Like, "Okay, that sounds good." So, I'll do a 20-year analysis. Mo will do it for 10. We'll look at the numbers. Remember, . Let's take a look. A few quick comments before we do that. I have very wide ranges because the company has just started making a profit. I have very wide ranges for revenue growth, profitability, and free cash flow.
The more unknowns, the wider your range of results will be , right? So it will be a very wide range of results. I did 20 years, Mo did 10. 20- year analysis. I took 8% revenue growth for the low end, 14% for the average, and 20% for the high end. Mo, what did you take? I took 15, 23, and 31 for the next decade .
Okay. So, at 20% for 20 years. Mhm. And what was their income last year? Let's take a look. Two billion. This puts them at $77 billion in revenue over the next 20 years. I can imagine it. The question is , will it happen? That's why this is my boldest guess. But it's still a big growth for the company.
And 31%Mo for 10 years. Yes. It takes them out to 30 billion. I think that's reasonable. That's reasonable. It's a big increase, but yeah, not terrible. OK. Profit margin. What did you get, Mo? So, I divided it up like this . 15, 25 and 30. Okay. I'm sorry. 15, 25 and 35. Let me put 35 here. That's what I wanted to enter.
Good. So, I took 10, 20, and 30. Okay. I So you're also increasing by 10. I, I just think, I look at them and ask myself, " How can they not make more with such a high gross margin?" How can you not earn more than 20%? I agree. Like any other tech company, although perhaps it's a matter of scale. What would you take for free cash flow?
For free cash flow, I took the higher numbers: 20, 30, and 40. I left everything as it was. Okay, that's what I did. I thought: well, they generate good free cash flow. It may continue to be higher than their profit margin. Yes, it is possible. I stopped there. OK. And what did you take for P/E? I took 18, 20, and 22.
I took 15, 17, and 19 for both the P/E and the price- to-free cash flow ratio. Of course? Yes, my price to free cash flow ratio was the same . 18, 20 and 22. Now the desired profitability. Remember, guys, the desired profitability is, in essence, your safety margin. The higher your assumptions, the greater the margin of safety you need.
So, you need to set a higher desired return. Mo, what did you take for your desired profitability? I took 12, 14, and 16%. I was actually a little hesitant because I think if I was really going to buy this, I would have increased the margin of safety. Here's what I did. Yes. 13 , 15, and 17. Because the way I look at it is this: even on the downside , it's still a company with a lot of unknowns and a lot of problems.
I still need to get that 13%. Besides, they do n't have a profit margin yet. That's right. When I look at the profit margin and the free cash flow margin, I think: well, it's not there right now. So, you need to set higher profitability for yourself. Yes. OK. I press the analyze button. Oh. The stock is currently worth $9.28.
I have $1.70 on the lower side. $1550 on the higher side and 5.83 in the middle. About my five dollars for the average price. Mo, what happened to you? I have about $4.50 to $6 on the low end, $20, $30 to $34 on the high end, and $13 to $15 in the middle. So, wow. But this shows how different our analyses are.
Yes. True. So, their low over the last year was 5.84, and my average price was 5.83. Look at this . So, it was there. So I just continue to be patient. Wait for these guys. everythingmoney.com. $7 for 7 days. Subscribe. Easy solution. Take care of yourself.
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