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It's no secret that Nvidia and Palantir have been soaring over the past year. The majority of YouTube finance channels have focused their content on these two companies as a can't-miss opportunity and have even made predictions on how high the stock may go. I'm going to share my thoughts about these two stocks and what I have to say might surprise you.
I'm going to be fully honest with you guys about Palantir. The numbers, phenomenal. Absolutely phenomenal. I think there's a lot of great potential in this company. I think that you talked about the balance sheet. Look at this balance sheet. $58 billion market cap, $55 billion enterprise value. That means they have net cash on hand.
They can take their cash, pay off all their debt, and still have cash left over. So, I look at this saying, "What a great balance sheet." Free cash flow, $640 million last year versus $300 million net income. 5-year average free cash flow, $168 million versus negative net income. So, they're showing free cash flow.
They've been generating years of free cash flow while the earnings are catching up. This is okay. This is great. This is phenomenal. Let's go look at the pillars. What's the story it's telling? Well, again, useless, fast-growing company, useless. Cash flow grew $1.1 billion. Net income grew $930 million.
Shares outstanding. Guys, it's a doozy for me. When they're increasing the shares outstanding, they're telling you, the public, "We think our stock's overpriced." That's what they're doing right there. And I don't I don't necessarily know if they're right or wrong on that one, but that's what they're saying.
They're telling you, "We're so overpriced, we're just going to issue shares to all the addicts to our stock, so we can have the cash in our balance sheet." Now, at some point, if they're selling for a discount to to intrinsic value, go buy back some shares back. But they should only do it that point.
But this is a young company. Look at this company. It is still very young. This is the the tra- the history that we have publicly traded, 600 million, 750, a billion, a billion five, a billion nine, 2.23. Big time growth here. Profit, again, the profit was a little skewed, but they're now finally profitable from a banking from a accounting perspective.
But let's go look at that free cash flow I was talking about earlier. I actually want to show you quarterly, going back to 2021. 88, 20, 57, 32, 74, 180, 86, 130, 300, 1 127. Big time free cash flow, guys. Big time free cash flow, 600 million in the last year. But, and this is the big but, can it justify 90 times?
Well, it's growing fast. It is growing fast. Let's see how much the analysts have it growing by. Earnings per share, actually not as much as I would have thought, 34 cents to 83 cents. Revenue, 2.8 billion to 6.5 billion. 20% or more every year except for one. Big time growth. Now, with that said, my the fundamentals of Palantir have gotten so much better that my valuation has gotten better.
And this is the last time I did Palantir back in February. I did a 10-year analysis. I did 8, 16, and 24% revenue growth over the next 10 years. I did profit margin of 15, 25, and 35. I did free cash flow of 20, 30, and 40%. I was looking at it going, "Hey, their margin pretty high, like Microsoft. What do they generate?" Remember, I don't have this history.
We don't have much history here. So, I had to do some speculation. Now, for PE and price to free cash flow, I did 15, 20, and 25. Might be low, might be high, I don't know. But I did my 9% no margin of safety return, hit the analyze button, and remember, guys, go click the link in the description below to sign up for the software so you get grandfathered in to everything.
But the values I have here, low side, three to four dollars, high side of 37 to 40. Middle? 12 to 15 bucks. But paying today's price, even on the middle returns, not that great. So guys, Nvidia just hit 140 on June 20th. It is now down to 120. It's had a couple days of of bad move. But guys, this is not something to sit there and say this is the start.
These These go I mean this company has absolutely surged this year. It's up 148% this year. In the last year it's up almost 200%. You can't possibly dictate what the short-term future is going to be based on anything. This thing right here is falling. Okay. No company can go straight up. There going to be ups and downs.
But do not confuse anything here, whether you're a Nvidia bull or bear. This company has absolutely crushed it. Their numbers on every single metric has gotten way better. And this is a difference here versus like the Ciscos of the past. This company's revenue, 80 billion dollars in the last 12 months.
Let me show you guys what Let me show you guys what it was in the full year ending 2022. 27 billion. 2023, 27 billion. 61 last year. In the last year, 80 billion. The revenue is skyrocketing. So what's the question here? The question is is this sustainable? Is this revenue going to keep growing to the moon?
Now, the concerns I have for this company are There are a lot of other chip manufacturers out there. Is Nvidia on the forefront of AI? Absolutely. But what's stopping other chip makers from doing this? And you might sit there and say, "Oh come on, Paul. That's gibberish." Is it? Look at computers when they first came out.
IBM was the computer. And then Dell, Gateway, Micron, HP, all these other companies started making computers. We've heard that like crazy about these chips. These chips are absolutely unbelievable and people are ordering them like crazy. But look at this. Their gross margin is at 75% now in the last year, that's a huge gross margin.
It wasn't that before. In previous years, let's go see what it was. Let's go back to 2021. The revenue was 17 billion with gross profit of 10.4. So, it was 62%. Okay. 62% is a lot, but to go from 62% gross margin to 75 is a huge leap. Companies are happy if they go up a go up a half percent or 1% gross margin.
To go from 62 to 75% a 20% increase from 62 to 75. Don't worry, the math is right there cuz it's 12% 13% on 6.62%. Is a huge leap. Now, question is, is it sustainable? And the other question is, you look at the revenue here. Up three and a half times. Let's look at the profit. Up four and a half times.
Let's look at the stock since 2022. Up 7x if not more at times, 6x. So, if this revenue is sustainable, if this revenue growth, even if it slows down, it still goes, this thing might have more running to do from a fundamental perspective. From the momentum, I have no clue, guys. And nobody should ever claim to know.
This has been a parabolic rise in a stock price. But remember, we're here to differentiate stock price from the fundamentals of the business. These are two very different things. And right now, Nvidia's hot. You have the CEO signing women's bras. I heard a joke from somebody recently saying that's going to be the peak of the market right there.
That's going to be the poster child for the peak of the market is Jensen signing a woman's bra. He's a superstar right now. And for those of you out there on Twitter saying, "Did you know he sold $30 million of stock this week?" K. He has a hundred billion dollars of stock. Who cares if he sells 30 million bucks?
That to me is not an indication that he is bearish on the company. That is not at all an indication. Now, let's go see the story of the company. Let's look at these eight pillars to generate a story. Guys, shares outstanding. I'm surprised they haven't been printing shares. If I were them, I'd be printing shares like crazy.
This is an X and it's 0.04%. Give me a break. I'm ignoring that. But, something to not be ignored, but to be understood, 230 times and 240 times price to earnings over the last 5 years and price to free cash flow. Now, when you have a company that's profit and cash flow skyrocket like this, you're going to have very high free cash flow multiples and earnings multiples.
This is not something you want to sit there and say, "Oh, because this is misleading number." I'm the first to say that here. And guys, you know how I am about valuation. And if you're new to this, I want you to hear this going incredible business, terrible number here, but this number is misleading.
That's why you have to understand the story. You know why? Cash flow growth of 35 billion, net income growth of 40 billion, high ROIC, revenue growth of 68 billion off of 40 off of 80 billion dollars today, this number is absolutely skewed. This is why I say that the eight pillars are so important to telling you a story.
That's why we have the eight pillars with all of this data here. It's about looking at everything collectively saying, "What is the story here?" The story is very clear. This is a fast-growing company. The question is, is this growth going to continue? And if it is going to continue, what's the appropriate price to pay?
Because with fast-growing businesses, you've got to understand you've got to pay a premium for that. For high-quality businesses, you got to pay a premium for that. Now, let's see what analysts are saying cuz we have that on our software for a reason. Ironically, the growth isn't as much as I would have thought.
Now, these 2 years, 280%, 102%, 30, 15, 18, and 1. But, you have the revenue you have the earnings per share almost quadrupling between the the year ending March 2024 and then 2029, the beginning of 2029. Big-time growth here. Now, could some of these analysts be skewed because of all the euphoria around it?
Maybe. Let's go look at revenue. 61 billion this year going to 206 billion in the next 5 years. What is that growth rate? That is a very simple calculation. A 27 and 1/2% per year growth rate in revenue. Is that possible? Absolutely. The question you need to ask yourself is, not only is it probable, is the stock currently valued, priced relative to value enough to give you enough margin of safety where that doesn't happen, you're still okay.
Now, I haven't looked at the numbers yet. My gut is it's probably not. But, the stock has pulled back very quickly. Now, I want you to remember something here. Forget about what happens soon. Eventually, Nvidia will hit its bear market. Eventually, Nvidia will I there's never been a time when an a high-flying stock has not been a dud to Wall Street and a dud to the public.
But, I want you to remember how great this company's financials are. Because at some point in the future, the financials and the public hype will not match. And the financials will be better than people give it credit for. Look at this. The market cap is 2.98 trillion. Enterprise value is the same. You know what that means?
No debt on the company, essentially. They could pay off all their debt and be debt-free. That is the kind of balance sheet you want. Remember, 100 years ago, you had to have debt, you had to have factories, you had all these things. And these guys built things, of course, and they have factories, but they don't do this.
They don't have to take on debt for it. They're spitting out cash like crazy. Look at this. 40 billion in the last five in the last year, even though their five-year average is 12 and 1/2, including that 40 billion. This company is absolutely killing it, and I hope that their revenue can continue to kill it.
But even if the revenue kills it, I want to remember there still could be problems with the stock if you pay too much money. Intel, Cisco, and all these other darlings of the 2000 dot com boom are much larger companies revenue and profit than they were back then, and they have not hit their price peaks from the year 2000.
Please rewind that 10 seconds and hear that again. Cuz that's important for you to understand. In the short run, stocks are a voting machine. In the long run, they are a weighing machine. So, what is the right price to pay for Nvidia? Well, I'm going to pull up the last time I used Nvidia in our stock analyzer tool.
And guys, very big reminder here. This stock analyzer tool does not include the balance sheet. The good news is the balance sheet on Nvidia is incredible. Now, for those of you out there looking at this going, "Oh, this is pretty interesting stuff." cuz we're going to get a lot of new viewers on this video.
My guess is 60 or 70% of the people watching this are new viewers. And you'll notice, if you click in the description below, that there's a wait list for our software. And the reason for that is because the software as it exists today includes all the tools we have to offer for stocks, retirement, and real estate.
All the tools. But we're making some changes behind the scene. So, in short period of time, that offer for all the tools is going to go away. We've been getting a lot of feedback from our customers, and people have found that they want to focus on one thing. It's not like Cheesecake Factory. When you go there and there's 80,000 options, you get a little rundown on it, and you get option overload.
People don't want that, and I get it. So, when you're using the software, I want you to remember I built this thing originally self receipt for me. I wanted to be able to analyze stocks, do my retirement, do my calculator on my own. But as we put them in videos, the most common comment we got was, "How do I get that software?" So, we actually just went ahead, and we built it.
And we are going to continue to use it but make it right for you. Cuz right now we have to transition from making it for me to making it for the user. As we've grown it has to be more about you than me. How can I better serve the viewer? That's why we're updating the software in order to give people exactly what they want.
But the good news is if you want all the tools cuz you're the person who goes listen, I just want it all. I don't care. Go sign up as soon as possible. Put the link in the description below. Go sign up. You'll be grandfathered in for life to have all these tools that I showed you before. This is the best deal you're ever going to be offered so go jump on it by clicking the link.
So as you can tell guys ROIC is getting better. Now the growth rate. The first level the first line being asked is revenue growth because that's so important. And you got to pay a premium for high growth companies. I put 10, 20, and 30% over a 10-year period. Remember analysts are thinking about 28% a year.
I'm putting in 10, 20, and 30 for the next 10 years. Profit margin. I did 30, 40, and 50%. Same thing here because even though this is high you're going to get more competitors. Don't get me wrong guys, they're going to get competitors. Now if they're able to kill it, awesome. Now PE I put in 20, 25, and 30.
If somebody said to me Paul, I'm putting in 18 or 20, I'd get it because this is a high-flying company and we don't want to be biased by what we see right here. This is not the true indication. I mean it's very hard for companies that are selling for 70 times earnings to get a really high return. I've backtested companies that were high PEs cuz they were perceived to be great companies and the returns are terrible going back 25 or 30 years.
Absolutely terrible if you bought the high growth high PE companies because what ends up happening is people tend to overpay for those. Now does that already return? I'm just doing 9 or 10%. There's no margin of safety in here and when you get the software you need to put margin of safety when you buy individual stocks cuz then I'd ask one question from you.
Why are you buying individual stocks if you want to match the market? You got to put a higher desired return in for that margin of safety. Hit the analyze button. All right. Got a low price of 30, high price of 320, a middle price of 103 and this middle assumes 20% growth rate and some pretty decent margins.
So it still feels over priced but remember this thing has grown its value so significantly over the last few years, so significantly. I probably had this thing valued at 15 bucks before. But they were their fundamentals have gotten so much better from an area that nobody saw happening. Now guys, if you want to learn more about my process for buying stocks, watch this next video. Thank you very much for your time.
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