Palantir: What Growth Could Mean For Price In 2025 And Beyond

Summary

• First, I look at PLTR's early growth from $10 to $25 or so today.
• Second, I review PLTR's growth assumptions once again showing how 30% growth per year is probably too modest.
• Third, I show how leverage on PLTR using long-dated options probably isn't going to greatly accelerate investor gains over the next 2-3 years.
• Fourth, I explain how many shares are needed right now to reach $1 million in PLTR stock by the end of 2025, given rational growth models.
• This idea was discussed in more depth with members of my private investing community, Growth Stock Renegade. Learn More »

KevinHyde/iStock via Getty Images

Background

It's very simple really. What's growth really mean for Palantir (NYSE:PLTR) investors in 2022, 2023, 2024 and beyond? This is more difficult to answer than it might appear on the surface but all will be revealed.

Here's how the article will play out.

• First, I look at PLTR's early growth from $10 to $25 or so today. I don't expect the same year-over-year growth, but PLTR investors today could still do very well.
• Second, I review PLTR's growth assumptions once again showing how 30% growth per year is too probably too modest. I still believe PLTR is sandbagging.
• Third, I show how leverage on PLTR using long-dated options probably isn't going to greatly accelerate investor gains over the next 2-3 years. That's not to say options are bad, but LEAPS don't look sexy here.
• Lastly, I explain how many shares are needed right now to reach $1 million in PLTR stock by the end of 2025, given rational growth models. This is not "get rich quick" at all, but instead it's meant to be an intriguing way to frame future growth for any investor.

Past Performance Won't Get You There

Let's start with a basic approach. Here's how PLTR looks thus far:

Data by YCharts

In one year, PLTR has gone up 155% going from $10 on September 30th, 2020 through $25.88 on October 29th, 2021. (I'm seeing $26.47 right now.)

Although I don't expect similar results going forward, we can roughly estimate how things would look. It's been about 400 days since PLTR's DPO. Therefore, very grossly speaking, PLTR is gaining about 0.23% per day compounded. I did that fast, and very back-of-napkin, but it's still fun and interesting, if not ridiculous. Here's how things would look now if you bought at the DPO:

• 10 shares at DPO for $100 = $250
• 100 shares at DPO for $1,000 = $2,500
• 1,000 shares at DPO for $10,000 = $25,000
• 10,000 shares at DPO for $100,000 = $250,000

In other words, even with $100K invested you would not yet be a PLTR millionaire. How many more days at 0.23% would it take to reach $1 million in PLTR stock in this case? Here's the math:

• 10 shares at DPO = 4,000 days (about 11 years)
• 100 shares at DPO = 3,000 days (about 8 years)
• 1,000 shares at DPO = 2,000 days (about 5.5 years)
• 10,000 shares at DPO = 1,000 days (about 2.5 years)

Of course, this is mostly absurd. Getting 150% returns per year is outlandish and it would have required buying right at the DPO for $10 per share. Plus, you'd need to keep getting 150% per year. Also, it would require zero selling. And, much more. Although this is all fun, it's unrealistic for most investors.

So, the first big point is that even starting with a lot of money and lot of shares, very few investors are hitting $1 million with PLTR right now. And, even with robust assumptions, it'll take many more years to hit the big goal. Therefore, patience is required. There's no way around the math.

More Reasonable Assumptions

For a moment, let's review one basic ratio.

Data by YCharts

Squinting a bit, you can see that PLTR's average price-to-sales ratio is about 28. Next, here are several more mature software companies, plus PayPal (PYPL), CrowdStrike (CRWD) and Snowflake (SNOW) for a bit of fun, and added perspective.

Data by YCharts

Not surprisingly, SNOW still has a much higher P/S ratio than PLTR. That's been the case for a while. And, CRWD is quite a bit higher. Then, naturally, all the older and bigger software companies I've shown here have significantly lower P/S ratios. Maturity acts like gravity, pulling P/S down.

However, with PLTR, I could easily see the P/S hold around 28 for the next several years as long as strong growth is maintained. In fact, we could see the P/S grow upwards to 40-50, or perhaps higher. On the other hand, it could drop down into the 18-22 range. Of course, anything is possible but I'm trying to establish some guardrails.

Here's why this matters:

Source: PLTR Q2 Earnings Slides

If revenue growth holds at 30% and price holds with respect to those sales, as the ratios indicate at this point, then we can do a bit of extrapolation. In other words, assuming 30% share price increases year over year isn't too crazy. Here's how that looks, assuming we start with a price of $25 right now:

• 2022 = $32.50
• 2023 = $42.25
• 2024 = $54.93
• 2025 = $71.40

But, here's the rub. I think that maybe PLTR is sandbagging. I wrote an article all about this with a ton of interesting proof.

In fact, 40% growth might also be too conservative, and according to my projections, PLTR is actually quite capable of 50% CAGR through 2025. For reference: Palantir Is Sandbagging Growth Projections.

Now, stick with me. Because at this point, we're moving from 30%, to a much higher set of numbers.

Follow The Math

I ran some numbers back in that article back in June 2021 when PLTR was trading a little bit lower, at $24. Here are those projections:

• 2022 = $34 (40% growth)
• 2023 = $47 (40% growth)
• 2024 = $66 (40% growth)
• 2025 = $92 (40% growth)

Then...

• 2022 = $36 (50% growth)
• 2023 = $54 (50% growth)
• 2024 = $81 (50% growth)
• 2025 = $122 (50% growth)

Again, for reference: Palantir Is Sandbagging Growth Projections. The math tells us that if PLTR is expecting $4 billion in revenue by 2025, then it's got to grow way above 30%. So, going way above $100 is perfectly rational.

Therefore, in 2025, being a PLTR millionaire would require just under 11,000 shares assuming 40% growth and hitting $92. Being a PLTR millionaire would require about 8,200 shares assuming 50% growth and hitting $122 per share.

Getting your hands on 11,000 shares right now at $26 would set you back $286K and 8,200 shares would cost you about $213K. Roughly speaking, you'd need $200-300K of PLTR, depending on your assumptions, and then how things actually work out.

Obviously, you can run your own numbers for your own portfolio from this point. The frameworks are simple, but clear. While I don't expect any kind of smooth growth from here, I do expect tremendous and growing strength over the coming 3-5 years, let alone the next 8-10 years.

With a substantial "down payment" becoming a PLTR millionaire isn't impossible, but that's not exact the point. Instead, it's to consider the tremendous growth in PLTR itself, but also the share price along the way. Even a modest amount of PLTR could turn into a handsome pile; thank you, growth.

Is Leverage Worth It?

Maybe we could use options to exploit leverage:

Options can provide leverage. This means an option buyer can pay a relatively small premium for market exposure in relation to the contract value (usually 100 shares of the underlying stock). An investor can see large percentage gains from comparatively small, favorable percentage moves in the underlying product.

Just remember the key risk if you're buying options:

Leverage also has downside implications. If the underlying stock price does not rise or fall as anticipated during the lifetime of the option, leverage could magnify the investment's percentage loss. Options offer their owners a predetermined, set risk. However, if the owner's options expire with no value, this loss can be the entire amount of the premium paid for the option. [Emphasis: Author's]

And, depending on your belief or "faith" in PLTR's growth, you could use long dated options or "LEAPS" to become wealthy with PLTR.

For example, we can easily go out all the way to early 2024:

Source: TD Ameritrade

Assuming you could buy PLTR LEAPs for $4.75 with a strike price of $40, then you could potentially do quite well if PLTR's growth numbers play out.

With 40% share price growth, PLTR would hit $47 by the end of 2023. And, with 50% growth, PLTR would hit $54 by the end of 2023.

At a glance that sounds good, but it's not fantastic. I don't even really have to run the numbers because at a glance you can see that you'd maybe 2x to 3x your money invested right now using PLTR LEAPS with a $40 strike.

Instead, maybe we'd want to look more closely at the $27 strike, for example:

Source: TD Ameritrade

At this point, assuming $8 for each PLTR Jan 2024 LEAP with a $27 strike, we're looking at $12 assuming gains per LEAP with 40% growth. Furthermore, we're look at about $19 gains per LEAP with 50% growth.

To be clear, what I'm doing is adding the $8 LEAP cost and the $27 strike price. That's $35. Then, I'm taking $47 which assumes 40% growth, and subtracting to get the difference, which is $12. And, I'm taking the $54 which assumes 50% growth, and subtracting the same way to get $19. Nothing too fancy here, and no complicated math. Either way, it falls short again.

Putting $8 in maybe gets us 1.5x to 2.5x returns in about 2 years. Of course, it could be more like 3x, or even maybe a bit higher. However, buying and holding is likely to generate similar gains, with less risk.

The message is this. The options market is smart, and forward looking. And, in this case, it's basically letting us know that PLTR's growth is likely to be in the 40-50% range, as I've explained above. The deeper lesson is to have patience with PLTR common equity. The growth is there and leverage won't accelerate gains without adding too much risk.

At this point in time, I'm not investing in PLTR LEAPS. Buying and holding, with strong growth tailwinds is plenty good enough for most investors. Or, at a minimum, buying PLTR and holding is good enough for my portfolio.

Wrap Up

First, I looked at PLTR's early growth from $10 to $25 or so today. I'm not expecting 150% gains every year, however. That's far too greedy and besides, the uncertainty around PLTR is slowly fading, thereby stabilizing things quite a bit. In part, this is what's holding PLTR in the $22 to $28 range, I believe. The burn off of uncertainty has built a floor, or trading zone. I'm confident this floor will move upwards in 2022.

Second, I reviewed PLTR's growth assumptions once again, showing how 30% growth per year is too probably too modest. Instead, it's looking like we'll see more like 40-50% per year for the next 3-5 years. Furthermore, assuming there's not a collapse in the P/S ratio, investors could enjoy 40-50% capital gains per year, although it might be quite lumpy along the way. If this is true, then hitting $90 to $120 in 2025 is rational.

As a quick sidebar, I can see PLTR hitting somewhere between $65 to $85 by the end of 2023, along the way. If PLTR can show concrete growth, and if they can taper stock-based compensation, this seems quite plausible.

Third, I've used long-dated options and some rough math to show that using leverage on PLTR in the market probably isn't going to greatly accelerate gains over 2-3 years. However, even it does work out, the risk to capital goes up. While there are some times where options work well, e.g., selling PLTR puts, using LEAPS right now doesn't look favorable enough. Better to buy and hold, in most cases.

As another sidebar, I enjoyed looking at PLTR LEAPS, which gives investors some added confidence in PLTR's growth over the next 2-3 years. The options market is rather intelligent as a wisdom of the crowds prediction model. I'm seeing an optimistic "thumbs up" right now. Growth Stock Renegade subscribers got an extra special view of this phenomenon, I might add.

And lastly, as a fun exercise, I've shown that you'd likely need 8,000 to 12,000 shares, and 40-50% CAGR on those shares, to reach $1 million. That would require setting aside $200-300K, and waiting patiently until 2025. Maybe that's acceptable, and maybe not, but at least you have a framework now to understand the potential. That's the real point.

Obviously, you can take all of this data plus the growth rates and come to your own conclusions. What I know is that my confidence in PLTR is still quite high and I continue to maintain my bullish position.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PLTR, PYPL, CRWD, AMZN, FB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Parkspec]

I keep thinking, how long will management be issuing stock to reward themselves for 15 years of hard work? Share count has doubled in the last couple of years, but selling pressure makes the price "the same."

[nahplease]

The market is so hungry for the next FB, TSLA, AMZ, etc., that any growth stock gets hyped to the gills. The problem is 99% of them fail, and investors lose money. Just like the dot-com era all over again. PLTR must have a large advertising budget (paid for by shareholders) for these articles to be wiped out daily.

[spike5]

@nahplease I would never pay 31x sales for anything and expect it to generate profits over an extended period. Eventually, there is reversion to not only the mean, but reversion to sanity.

[Petermevans]

Outstanding article, clearly written, easy to understand, thank you.

[kthor]

I keep buying and selling the Jan 23 $25 for profits several times this yr ..50% every time, this last one into summer and hope for 100% perhaps more

[John Rhodes]

@kthor

Well done.

[moschissler]

John, excellent piece based on skillful math extrapolations; I like your method and it bolsters my deep beliefs about why PLTR will grow consistently for decades. I will add shares as price ebbs over coming months. Long PLTR

[John Rhodes]

@moschissler

If I can't write it on the back of a napkin or draw it out with crayons then I'm generally not happy. Keeping it simple is very important to me.

Have a great day!

[Eminef]

Aren't there better stocks to buy for the long term? Most hyped up stock whose products we know very little about and has been almost stagnant for more than a year.

[John Rhodes]

@Eminef

What stocks are better for the long term?

it hasn't really been stagnant for a year. That's more recent. Besides, stagnation in price for a year doesn't tell us anything about the growth the business. Sometimes the market doesn't price efficiently for growth...

Thanks for reading and commenting.

[PanicFirst]

@Eminef What stocks though? 10 years would be closer to long term...

[emcee80]

@John Rhodes

To be fair a lot of high growth stocks took a major hit since coming off their Feb/March highs and are likely to take their next major leg up since a long cooling off period.

[Larry Hall]

I think PLTR is both the most hyped and most overrated stock on the exchanges. Investors in PLTR overlook management behaviours that are hostile to shareholders.

[paleraider]

@Larry Hall I heard this exact same thing for years about Amazon from 2000-2007 when they intentionally were losing money to grow and everyone was bemoaning their business model and lack of profit.

[maslo]

@paleraider you really did hear that?

[karondongotbanned]

@paleraider i didnt hear anything about it. people were bashing amazon because it was selling books.

[BeachThor]

The price was 29.05 after IPO pop. That was almost a year ago. Now it's 26.50. Down roughly 10%. The S&P is up almost 40% over same time period! How many people are hoping this is the next TSLA type stock? Good luck to all!

[John Rhodes]

@BeachThor

Plenty of opportunities to buy under $20. In fact, getting in for $15 was quite possible.

Why? There was no real initial pop due to the DPO vs. IPO.

Selling puts in the $18-22 range could allow for buying PLTR for around $20, or making 15-30% annualized.

In other articles I’ve discussed some trading opportunities.

That said, buying (at good prices) and holding is “easy” for long term investors, giving PLTR’s growth vector.

Thanks for reading and commenting.

[BeachThor]

@John Rhodes your article on selling puts was excellent, as was the comment section on that article also.

[John Rhodes]

@BeachThor

Thank you! 😎

[Jpokergman]

Any individual who is invested for whatever reason, has made a wager on a hard to understand derivative.

That’s enough for me to hold position.

The software can only improve operators lives, merely from time, and refreshes.

[stompers54]

nice exercise in mental masturbation. what are your projections for positive cash flow per share given the massive sbc required to incentivize all the " talent " required to manage every client. translate your growth percentages to that metric and then we will have a valuation discussion. By the way, all those exercised options shares that have been dumped are out there in the float.

[Jazzy1]

Love the article. Learned something. Will pick up the speed of buys with any general market related pull-backs. But likely no more than 5000 shares. Cannot let it become more than 7-8% of portfolio. It is going to be decade long investment.

[dratomic1]

Yup. Another Yeah PLTR article. There are so many. Bought in at $37 in Feb. Still waiting. If it weren't for covered calls, I'd be really pissed.

[Gravity404]

@dratomic1 Oh yeah, blame that purchase on the stock. I'm in under $10. I feel just fine for the long haul.

[ahappyinvestor]

@dratomic1 lol sounds like your own fault, long at 22 dollars

[hns1040]

John: About 3 - 4 months back - you very strongly advised, bullishly about buying Call options for January of 2023. But now, today you are completely reversing that statement by saying -"Third, I show how leverage on PLTR using long-dated options probably isn't going to greatly accelerate investor gains over the next 2-3 years. That's not to say options are bad, but LEAPS don't look sexy here."
What made you to go 180 degrees apart. please explain?
What made you to reverse your bullish to mildly bullish position.
Thanks, I am a member of your private investing community, Growth Stock Renegade.

[John Rhodes]

@hns1040

Great question. The very short version is that the economics were better at that point for LEAPS. And, that article also focused on some short term trading opportunities with short dated options.

I'll also point out that LEAPS are a bet on a great future. Not just weeks or days from now, but years. My bullish view hasn't moved at all.

Have a great day.

[Nyi Nyi]

Thanks for the analysis. I'm a firm believer in PLTR & began a position with $9.7 a year ago. I continue collection as much as I can. The moment I noticed PLTR could be huge opportunity is the long NYT profile about it aft few months of its IPO & we started happen to know about the detailed PLTR. From that moment on, PLTR never get back $10 range & even to $15 :D

[Obi-Wan]

A lot of positive articles on PLTR, but the stock isn’t listening. I’ve been in and out a couple of times, one gain, one loss. They have a lot of work to do and a lot of confidence to earn yet….

[PauloCostaSilva]

@Obi-Wan ... but when it decides to answer, some people will smile, other people will cry :)

[BeachThor]

@Obi-Wan I'm in same boat. Meanwhile my 401k index funds are up 35% in the past year.

[kthor]

@Obi-Wan

I buy options when it's under 22-23 oversold and sell when it's near 28-30 when oversold = ez profit

[wcf99]

John got me into PLTR at $12. I'm at full position and happy to be the first Growth Stock Renegade. He just convinced me with this article to find something to sell and buy some more. Got to get as close to 8,000 shares as I can!

[uwin1_on_the_wave]

As per fibonacci retracement, we may hit $29 in Jan 2022... we still need to reach and hold the next upper levels between $33 and $39... which will probably not happen until 2024..... Palantir does not have major catalysts other than news of client acquisition and these bytes are not exploding the price higher.. not a problem just normal behaviour of this type of stock. Luckily the long term trend is UP.

[Gravity404]

@uwin1_on_the_wave Take a look at the investment that PLTR has made. Similar to traditional VC. If 1 out of 10 hits, it will move. Very strategic. E.g. BlackSky - image the benefits of this tech (all governments and industry) as we move further and further into the green world.

[uwin1_on_the_wave]

@Gravity404 Cool...you have identified a major catalyst

[going for green]

As per records from Dataroma.com, PLTR CEO sold stocks worth 140+ millions in last month. This is not one time sale but happening at regular basis. I understand selling some part of stocks for taking profit out but this makes me to believe CEO himself is skeptical about long term upside potential and cashing out rather than stay invested and make higher profit if he thinks company is doing well.

[John Rhodes]

@bhurakoi

I strongly advise you to read an article I wrote about this:

seekingalpha.com/...

In short...

"In short, Alex Karp has a huge number of options. These options are "old" and apparently must be exercised now; I believe before the end of 2021. Furthermore, the selling is automatic, which seems to line up pretty well with the data I've captured above. In other words, Karp's selling isn't because he's lost faith in the company."

However, again, I encourage you to read my full article for greater clarity.

Have a good night.

[suds2you]

@bhurakoi don't sweat the small stuff. If I may add, this is standard procedure for newly listed co's. All the insiders (management, employees, investors) need to roll their options out for stated reasons. Also, this group of ppl have been living on reduced pay in lieu of their SBC. I've read where Alex Karp never received a paycheck, so now it's his time to reap the harvest of the seeds he's sown.

[Petermevans]

@suds2you I totally agree, just because he’s liquidating shares doesn’t mean he doesn’t believe in the future of the company. I’d be liquidating some stock frequently. I don’t get why so many people are freaking out when management is selling some shares, they need liquidity to buy real estate, pay taxes, etc. Of course they’ll be occasionally selling shares

[craftbrewinfo]

I have some serous buying to do lol

[howier]

Appreciate this article, particularly the discussion about PLTR LEAPS, which I’d been buying now and then. PLTR is 3rd largest holding behind BRKB and AAPL, in a portfolio that’s been creeping toward my first million for many years. Time to swap some of my index ETFs for more PLTR!

[suds2you]

@howier take that chance...