# PLTR Reverse DCF: what is the current price implying?

### Testing assumptions is more powerful than predicting

*Editor: @Emanuele20x*

Palantir just returned to a **~$7 per share** similar to post Q2 Earnings, a Quarterly call that raised doubts about its operations (PLTR Q2: Really A Disaster?).

Is PLTR 0.00%↑ bad, or is the price starting to imply too much negativity?

To answer this question we can use a **Reverse DCF.**

In a **regular DCF, we select the assumptions to obtain the “fair value” of the company**. Performing an **Inverse DCF** means doing the opposite.

Starting from the current price we obtain the assumption needed to justify it.

From here:

any improvement from this case

**= potential upside.**worsening numbers

**= potential downside**

This way we don’t seek to answer “what is the company worth?”, but **we start from the reality, the current price,** in order to test how reasonable the implied assumptions are.

Wrong assumptions implied by the market = overhype or over pessimism.

#### What does PLTR price imply?

Below is a simple and synthetic PLTR DCF that I’ve created, which expresses potential assumptions implied by the current share price of **$7.4 per share**.

If you would like to perform your own assumptions and help support my research, you could find the link to the sample DCF below.

**The current price implies a conservative scenario:**

**25% Revenue growth**for ‘22 but later adjusting to 30% following 30% Guidance;**25% FCF Margin**for many years, a reduction compared with the 31% in ‘21;**10% Dilution**in ‘22 and gradually decreasing towards 3%;**15% WACC**(discount rate) = minimum hurdle rate required by VC funds;**3% perpetuity growth**rate.

The **current price reflects doubts about Palantir’s ability to increase growth** above the guidance and already incorporate the adverse effects of SBC (Why 99% PLTR DCFs Fail).

Lots of negativity is already incorporated into the price, leaving more space for the upside.

#### How can Palantir stock raise?

There are many ways that could support Palantir’s price:

**Better growth**sustained both by major wins in Government business (potential wins from NHS, TITAN) and Commercial, especially in the US (PLTR US Commercial is the Key), which is growing by +40%.**Better margins**from existing clients scaling more than the margin pressure from acquiring new clients.**I expect the combination of growth and FCF to stay at least ~60%**.**Lower dilution.**‘22 dilution should still be high considering PLTR’s aggressive hiring (PLTR Against the Tide). Any clear sign of steady SBC reduction should be appreciated by the market.**Lower WACC**(weighted average cost of capital), used by analysts. For instance, BofA currently uses 13% discount rate driven from the “high beta” of Palantir sector (PLTR Costs Less than Coca-Cola). If Palantir proves it can successfully navigate a recession (Is PLTR Recession Proof?) analysts could lower the applied discount rate.**Sector Multiples reevaluation**. Currently, SaaS Companies trade almost at the multi-year bottom. Renewed interest in the sector would support higher multiples for Palantir than the current ones (7x EV/Sales).

Without the support of these factors, the price would not deserve the current valuation nor would it be subjected to further upside.

#### Conclusion

It is crucial that Palantir shows better results than those of Q2 (PLTR Q2: Really A Disaster?) and starts translating the clients acquired into Revenue growth.

**The assumptions implied by the current price are quite conservative and leave substantial upside if Palantir delivers.**

However, a further slowdown would inevitably reduce the assumptions used by banks to evaluate Palantir and create further downside pressure on the stock.

Yours,

Arny

Join me on:* Twitter*: @arny_trezzi

**Youtube**: @Arny Investing

Discord Channel

*View expresses are my own and do not represent Financial Advice in any way. I own (many) PLTR 0.00%↑ stocks. *