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$PLTR dropped ~5%+ the day after its earnings call on Monday.
15 analysts updated their price target in the last 6 months, Avg. price target is 34% lower than the current price, Avg. recommendation is HOLD, Short interest is ~7% (as of 7/25) Is the price drop a chance to buy, or is the meme hype subsiding, and expectations adjust to reality? Let's find out! Unexpected Stuff In PLTR Earnings
Announced a $1B share repurchase program.
Just launched its LLM product, Artificial Intelligence Platform (AIP). More to come about this product at the September conference. One of the best storytellers in the market. Always trend-forward, relevant, and exciting. Subtle jab at AMD, mentioning PLTR teaches people how to use LLMs instead of writing neat poetry. ;) PLTR's Top Line
Revenue was up 13% Y/Y to $533M.
Commercial revenue up 10% Y/Y. Government revenue up 15% Y/Y. Investors want to see that commercial segment grow rapidly. This Q, the growth rate was the opposite. Score: Good -- Solid Q/Q revenue growth since Q1 2019 PLTR's Profitability
Score: Fair -- small, but good to see the focus and persistence. PLTR's Balance Sheet
~ $3.2B+ cash & cash equivalent
vs. No significant debt Score: Good PLTR's Free Cash Flow
Positive Free Cash Flow, thanks to positive operating cash flow, which in turn is the result of smaller operating loss.
Score: Fair -- Good direction and monitoring for expansion PLTR's Valuation Feasibility
P/S of 19X
Forward P/E of 82X The # of shares going up (diluting customers) justifies buying $1B shares. To reach 19X sales, it requires 34% annual revenue growth in the next ten years. That's not realistic, judging from its revenue growth history. So to justify the current valuation, it has to keep that profit margin or FCF growing by quarter. Score: Bad -- watch for profit margin expansion or free cash flow growth faster than it has been. Notable Investors
Regardless of the valuation, ARKK ETF picked up more shares of PLTR after the earnings, indicating their models expect much faster revenue growth in coming years due to generative AI and AI demand.
IS Palantir (PLTR) A Buy Now?
The company's fundamentals are getting stronger.
The stock price isn't cheap. If you invest now, expect volatility. I don't own PLTR directly but I'm invested in ARKK which means I'm indirectly a PLTR shareholder. Make sure to do your own research: https://stockcard.io/PLTR The world is changing! Fitch Ratings downgraded the United States' creditworthiness from triple-A to double-A. The US was once the absolute economic power in the world, and the U.S. dollar was the most desired currency globally; maybe it still is, but cracks are appearing in this fortress. The U.S. could have borrowed money from anyone, and there was never even a sliver of doubt that the country couldn't pay it back. But, credit agencies like Fitch have started to paint a new picture by downgrading the country's creditworthiness. This seems like a disaster for stock market investors who are used to seeing financial analysts downgrading a stock, resulting in price drops and drama in the market. It's only natural to assume getting downgraded is a disaster for the U.S. The media certainly make it seems to be a big deal. But is this downgrade really that bad? Is it a sign of the change in the world economic order? And if so, what are its implications for individual investors and their portfolios? Let's talk about that. I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of a series I started a few weeks ago to fundamentally research companies to manage my real-money portfolio. I've already researched Canopy Growth (CGC), Fastly (FSLY), Snap (SNAP) , Shopify (SHOP), Airbnb (ABNB), Unity (U), JD.com (JD), NVIDIA (NVDA) and several others. I also started sharing interesting investing-related stories. The first one was on what happens when the U.S. hit its 2% inflation target. More interesting stories are in the works. Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask your name and email address when you sign up. Most of you already heard of the Fitch Ratings downgrade of the U.S. But it is not the only credit rating agency that downgraded the U.S. The S&P rating agency downgraded the U.S. back in 2011. Three big rating agencies in the world rate the creditworthiness of entities such as companies and governments – Moody's Investors Service, S&P, and Fitch Ratings. These three have a 95% global share in the rating market. The recent downgrade hasn't also come out of the blue. Fitch Ratings has had the U.S. on creditworthiness watch from time to time and has issued a negative outlook in 2011, 2013, 2019, 2020, and earlier in 2023, before the actual downgrade. The prominent reason for all these downgrade warnings and creditworthiness watches has been the consistent rise in the U.S. debt in relation to the country's GDP and the political standoff and uncertainties in raising the debt ceiling. Are Credit Agencies Right?In logical terms, when someone's creditworthiness goes down, it's because there is a higher chance that the person will not be able to make the debt payments. Is there a higher chance for the U.S. not to be able to repay its debt? It all starts with the government's budgeting process. When the revenue it earns from taxes is insufficient to cover all its expenses on health care, defense, etc., it must borrow money. Typically, the U.S. sell bonds to its citizens and the rest of the world to borrow this money. We know these bonds as Treasuries. As we all know, the U.S. has been borrowing more money year after year, and it keeps hitting the allowed amount of debt and has to increase it through an approval process. If the government doesn't get approval, it won't be able to pay for its expenses, including paying the interest on all the borrowed money over the years. This gets even more critical when the interest rate is going up. The higher the interest rate the government pays to other countries to borrow money from them, the higher the debt repayment cost, which then requires the government to go through the process of raising the debt ceiling again. This is where Fitch Ratings insert a concern. It references the political stand-off and resorting to last-minute decisions to increase the debt ceiling as a risk. It's, in a way, true. If these uncertainties around the ability to pay interest scare borrowers from around the world and result in them not wanting to lend money to the U.S. anymore, then, it means the U.S. has lower creditworthiness. Is the U.S. Creditworthiness Really Lower?
In a way, the downgrade doesn't really matter at this point because no one believes that the U.S. will stop paying its debt, and everyone wants the high yield the U.S. debt generates. We must discuss one real long-term threat to the U.S.'s global creditworthiness. What's The Real Threat of Fitch's DowngradeOne of the reasons everyone in the world wants to hold the U.S.'s debt is that it's the world's reserve currency. We hear that all the time. Central banks and major financial institutions hold U.S. dollars for international transactions. When you hold U.S. debt, you get paid interest in dollars, and that's what people want. They want to get paid in U.S. dollars. The long-term threat can be that people won't want and need to hold as much U.S. dollar anymore. That's possible when there is an alternative currency that the central banks would also want to hold. Every few years, we see an attempt by global players to reduce the U.S. dollar's status as a reserve currency. For example, at the peak of cryptocurrency interest, there was a discussion that central banks hold Bitcoin as a reserve currency. Recently, there is been talks that China, India, and Russia are settling oil purchases in non-dollar denominations. These things happen because other countries want to lead the world or at least share the power with the U.S. And every little thing that reduces the U.S. leadership can make a difference in the long run. A man can only lead when others accept him as a leader. For the U.S., it can only lead the world until others accept it as one. The downgrade in 2011 by S&P didn't have a major impact then, but it gave Fitch the courage to downgrade the U.S. in 2023. One small chipping at the wall of the U.S. creditworthiness can gradually erode the fortress. So the Fitch downgrade should be a wake-up call to the U.S. to get its act together. Let's wrap up by talking about the impact on our individual portfolios. The Credit Downgrade's Impact on the MarketWhen S&P downgraded the U.S. in 2011, the stock market dropped five to seven percent on the same day. The same happened when Fitch's rating came out on Aug 1st. After the 2011 downgrade, as we know, the U.S. stock market went on several years of upward rally, and nothing really changed because of the downgrade. The same will most likely happen after the Fitch Ratings' downgrade. So there won't be an immediate impact on our portfolios. But, remember, no one can predict the market's direction, especially the macroeconomic indicators at such a scale as the world's reaction to the U.S.'s creditworthiness downgrade. I can publish this episode, and despite all our logical arguments, we may have the biggest drop in the stock market the next day that the market opens. You have to always hedge against such risks. How To Protect Your Portfolio Against the Downgrade's RiskThere are complicated ways that sophisticated professional investors do this. For example, we heard Bill Ackmen, the famous hedge fund manager, explaining his strategy of shorting 30-year U.S. treasuries by buying options. His decision wasn't just due to the downgrade, but he made the Fitch downgrade as one of the reasons to support his decision. There are other and simpler ways to hedge against big macro factors for individual investors. The easiest way is to invest in countries besides the U.S., especially for those long-term investment accounts. For example, in my 401K account, I allocate 60% to the U.S. overall index fund and 40% to the rest of the world index fund. You may want to consider some sort of hedge in your own long-term investments too. See you next time!
$FSLY jumped ~21%+ after its earnings call on Wednesday after hours.
The stock has been a poor investment, down ~4% compared to its IPO price. But there is a reverse in the direction with a 45% jump in the last three months. Is the stock on its way to the all-time high of $100+ or beyond? Let's find out! Unexpected Stuff From Earnings Report
Based on Coatue's Rule 200, FSLY still needs to be in better shape.
Revenue growth + Gross margin + Operating margin + 12M Retention > 20% + 52.3% - 40% + 116% = 148% -- > Negative operating margin is a drag, while revenue growth is not as fast as it used to be: Note: Coatue uses Rule 200 for fintech. I use it for all SaaS/Subscription stocks. The company added several new executives. We need to see how they perform in the upcoming quarters. Fastly's Topline
Leading Indicators:
Score: Fair to Good -- need to see faster growth for such as small company (only $123M in quarterly revenue). Fastly's Bottom Line
Score: Fair -- directionally moving toward profitability. Fastly's Balance Sheet
~ $400M+ cash & cash equivalent
vs. ~$470M+ in total debt Some debt concerns. But there is good news: FSLY uses cash to buy its long-term debt at a discount to par value and saves on overall expenses. Score: Fair -- watch for debt reduction. Fastly's Free Cash Flow
Turned positive Free Cash Flow, thanks to positive operating cash flow, which in turn is the result of smaller operating loss.
Score: Fair -- Good direction and monitoring for expansion. Fastly's Valuation Feasibility
P/S of 4.5X, much smaller than peers.
To grow sales by 4.5X:
Score: Fair to Good -- watch for earnings and rev growth. Is Fastly (FSLY) A Buy Now?
The company's fundamentals are getting stronger.
The stock price could be a fair buying opportunity. I own it and plan to hold it. Do your research: https://stockcard.io/FSLY
$PYPL dropped ~6%+ after its earnings call on Wednesday after hours.
The stock has been a poor investment recently, down 14% in the last five years, despite hitting an all-time high in 2021. PayPal is the original Fintech and should still have a long growth potential ahead. But the stock price in recent quarters tells a different story. What can we learn from its latest earnings report about its long-term potential? Read more on this thread. Interesting Stuff From PYPL's Earnings
PYPL's Revenue
Leading Indicators:
So, $PYPL is extracting more value from its current base. Why doesn't it grow its base? The mgmt. says it is intentional and is focusing on engaging the current base. Revenue grew 8%. Score: Fair to Good - Not a high-growth company anymore! PYPL's Bottom Line
Score: Fair to Good -- Directionally moving toward higher profitability. PYPL's Balance Sheet
~ $12B+ cash & cash equivalent
vs. ~$10B in total debt Strong cash held from customers' balances. Score: GOOD PYPL's Free Cash Flow
Impacted the fair value deduction of the BNPL loans being sold to KKR, the company took a $1.2B hit to its FCF.
It seems to be an excellent decision to avoid holding the loan balance on the balance sheet. PYPL is a solid free cash flow generator with a trailing 12-month FCF of ~$5B. Score: Good -- watch for other short-term impacts PYPL's Valuation
Because PYPL is a more mature company (profitable, FCF), using P/E is a good valuation indicator.
In this case, a Forward P/E of 15X is relatively undervalued. Even with the 3X P/S ratio, the stock isn't too expensive. To grow sales 3X in the next ten years, PYPL needs 12% annual rev growth. This is in the range of the overall market and PayPal's revenue growth. Score: FAIR to GOOD -- Watch for earnings and rev growth. Is PYPL A Buy Now?
The company's fundamentals remain strong, despite the stock price
The stock price could be a good buying opportunity. No expectation of crazy 5X - 10X growth potential I own it, and plan to hold it. See you next time!
$AMD jumped ~4% after its earnings call on Tuesday.
It all comes down to valuation and long-term potential. Read more on Twitter (X.com)'s thread.
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