Okay folks, there is no shortage of fear in the growth sector, and no shortage of stocks that are down massively from 52-week highs. I don't need to re-bring up the statistics that show that more than a third of Nasdaq stocks are down 50 or more, and two-thirds of Nasdaq stocks are in a bear market. But of the growth sector, there's certainly some stocks that you could say yeah, but those valuations were way way too frothy. They deserve to be beat down.

And there's some others that maybe they did get a little bit frothy last year, but now they are down so damn deeply that it's almost insane. There's so much fear and blanket dysphoria that your mind is spinning. and for me, one of the most obvious examples of that is Palantir Pltr. I have personally been slowly buying the dip in Pltr, and I bought the dip again this morning as it dipped below 15 bucks a share.

And in terms of how long it's going to go down or how low it's going to go, who knows so much of buying high conviction plays is buying when there's blanket fear and selling when there's blanket euphoria Right now, We don't know how long this blanket fear is going to last, but we do know that the fear is here and fear is the time of opportunity. So anyways, here are my arguments for what's going on with Palantir and why. It's an insanely good deal right now. So the palin of the tear? Why is Palantir getting beat down? Well, it's because it's in the basket of Growth Tech Ew, Cell growth Tech The current narrative is the growth tech is full of money losing companies burning cash and over leveraging themselves.

Risk appetites are also going to be dropping. We're heading for a very, very long period of lower returns for tech stocks because guess what? rate hikes and historically rate hikes lead to what well tech stocks getting bludgeoned? Except that they don't really. But that's what the narrative says. that's the trend in the market and what the fear is telling us.

If you went on Cnbc this morning, you could see Jim Cramer calling companies that don't make money quote clown companies. They need to be profitable Now Now now. Or they are clown Companies Clown. Do Not buy clown companies that are at 52 week lows.

Buy value stocks that are at record high values. If there's a value stock, there's no need to check the valuation because value was in the name. I also love the characterization of growth companies is simply money losing companies that are clowns. With that characterization, Elon Musk would be the chief clown officer up until maybe mid 2020 when Tesla reported their first fourth quarterly profit.

You bought Tesla before it went up massively. What were you doing? You were clowning around, especially if you bought it like in 2018. Are you stupid? Interest rates are like 2 then you clown buying it when we're not at record low interest rates, just slightly above record low interest rates. I joke around.

but the whole idea of buying a growth company is you're buying one before it becomes a mature company that has already realized most of its potential. You're buying a baby before it becomes an adult. By the time it becomes an adult, you're paying 1 000 times the share price and then all of a sudden you're going to get the next guy on Cnbc saying oh, it's a value company. Now if you're trying to grow a business, hey, you might as well go and join the circus because that's where all the other clowns are.

But anyways, if you're talking about money losing companies that are highly leveraged, Palantir, while it's constantly put in that bucket by analysts, does not fit that definition at all. At least once you get past a surface level analysis, which again, that's not very common, Let me explain. So, as of the latest report, Palantir has 2.3 billion in cash on its balance sheet. It has effectively cleared its debt from 198 million year and twenty twenty two zero dollars as of the latest report in September.

They do have some long-term operating lease liabilities that some analysts are characterizing as debt, but those are really more operating expenses. Effectively, they are an early stage growth company with no debt. That's insanely rare. And yes, they are early stage.

I understand that they've been doing government contracts for a couple decades, but the commercial segment of Pltr is a damn baby. It's only been around for a few years, and that's where all the biggest growth numbers are going to come from. So I do consider Palantir an early stage growth company. It just has a very, very healthy balance sheet.

Because of its diversification and because of its years of experience, revenue growth is substantial expected 40 for fiscal year 2021 and likely hovering closer to 30 for upcoming years. Operationally, they are profitable, and free cash flows are estimated to be 400 million for full year 2021. We'll see the total numbers when the next earnings report comes out, but when you go to the bottom line, they are still burning cash. Why? Why? Because they're participating in the cardinal sin of being a growth company.

Aka, they're investing in themselves. The atrocity they're plowing tons of money into R D, invested in building out actually competitive platforms, paying a lot of money in terms of conversion costs. The way the Palantir works is they lead with losses. They lock in customers at the early stages in hopes that they convert them to bigger and bigger and bigger exposure to Palantir's products and thus more income.

If you're investing in getting a lot of customers, you're going to be leading with a lot of losses and a lot of people are going to be very, very upset. But if you actually wait a little bit longer in the video, you'll see what they're doing with the conversions that we've already seen and the ones that they've already led with losses that have turned around into huge money makers. The other thing to keep in mind is that this company has also put substantial resources towards paying off debt. If they redirected those debt repayments to something else, they could have made their quarterly sheets look a lot a lot more appealing and pretty for Wall Street analysts.

and they may have even pumped their stock price a bit. In fact, if you gutted R D got rid of a lot of their talent, Stop Paying Off Debt Expanded debt. All the things that companies that want to please Wall Street do well. You can make Wall Street Love this company.

Overnight, you could shoot out so many dividends that Wall Street's head would spend and you got Palantir being the best value company ever. But after a couple years of doing that, volunteer is screwed and everybody else is passing them. So they're investigating new clients. They invest in creating the best platforms that they can, and I would argue that a company with no debt, high cash balance, huge slew of customers scaling into their pipeline, and a positive operational cash flow is actually in good shape to handle a period of rise in interest rates and higher inflation.

Not in worse shape. Of course, though, I'm talking company-wise the company and the stock are two very different things. That said, it's not all berries and roses for anything really. And one of the biggest points of contention for Palantir is their stock-based compensation.

Sbcs new companies have to find ways to attract talent and retain talent, and Palantir prefers doing that by paying employees with stock-based compensation, essentially giving shares to employees as rewards for hitting certain parameters. But the problem is the super hot introduction to the public markets in 2020 led to insanely high stock-based compensation in 2020 and in 2021 as parameters were hit. On top of that, the majority of that compensation, especially in 2020, was to the top execs over at Palantir, which is not the best Pr move. Worse yet, when you get awarded a lot of stock, you have to figure out how to pay taxes on that stock.

And what happens, well, is executives have to go and sell shares of the company in order to pay those stock options. Which adds to speculation that oh no, these insiders, they're cashing in on the company, when in reality they're just paying the tax you saw Elon Musk do that. But stock-based compensation is going to be more excessive when it comes down to new ipos, especially hot ones. And now we are heading into a period where stock-based compensation is dropping dramatically, and in 2022 and 2023, it's going to be incredibly incredibly lower.

I do think that the stock compensation given to Alex Carp in 2020 was excessive, but keep in mind this is somebody who is with the company since day one. As a founder and at the end of the day, when you take your company from a small, privatized government contractor to a massive commercialized entity that is now going and introducing itself in the public markets, you do deserve a reward for that many, many years in the making. And if it can continue to provide that value to shareholders moving forward in terms of growth, then hey, it's worth it. But still.

I would say excessive for the stage of the company. I would argue that Sbcs are going to be much more correlated with attracting and keeping new talent than it is with just enriching the people at the top Building on Sbc's the Big D word. People are worried about delusion. If you read any bad article about Palantir, it's because of the D word.

The accusation is that Palantir has deluded and deluded and deluded the shareholders in order to pay for these Sbcs. Well, not only again, are Sbc is going to drop dramatically, but Palantir has actually not issued a single new share since ipo. What they do is simply unlock ones that were already in existence at ipo. Every time they want to do an Sbc, these are shares that are already in the current share account.

so they're not dilutive shares in that sense. If you have 100 shares in total and you lock up 30 and you let 70 rotate around the market and then you go and you unlock the authority to pay Sbcs. Well, if you own one share before and you own one share after, you still own one percent of the company. Not positive to go from being locked up in a company to then going and being able to be sold.

But it's not exactly dilutive either in that you're getting the same amount of the company. But anyways, all this talk aside, what is really the basic reason to be bullish on this company? I don't get it. Charlie. Well, the reason quite simply is that the monetization model is improving.

Business model works in a way where again, the longer customers are with you, the more they spend on your products. Palantir gets a corporation in it, learns how to work with the corporation and starts implementing itself, and then over time it expands into the other areas of the company's business. and the company pays more money to Palantir and that business model is working. Here's a direct quote from the last earnings release in 2020.

We generated 20.3 million in revenue from customers that were in the expand phase as of the end of the year with a contribution margin of negative 159 percent and the nine months ended September 30th, 2021. Those same customers generate 62.1 million in revenue with a contribution margin of 45. So what does this mean in English? Well, they went from generating 20.3 million in revenue in one year with new customers to then going and tripling that in the next year with that same group of customers. Meanwhile, they flip their contribution margin, which is their profit or loss per unit.

They flipped it from negative massively to positive in one year. That means that Palantir is doing what it's setting out to do, taking losses, to get the customers in, learning how to work with them, and then expanding into those businesses and flipping the profitability of each. There's certainly a strong leading investment from Palantir to convert the customer to get into those later stages. And that's what a lot of analysts are like.

Ew, they're putting money into getting new customers. That's terrible. Short them. But if you see what happens with these customers, that Palantir converts at a loss.

First, you see that as those customer accounts mature customers spend exponentially more with Talenteer, and the amount that Pallentry actually has to pay to maintain those relationships at the later stage goes down. so you have more money being spent by the customers and less money being spent to keep the customers by talent here. Expanding revenue, lower costs, and when you see a ton of new customer acquisition, you could see how this can compound very, very fast if you give it some time. The model works terrible in the short run because you're losing to get customers and you're losing to get R D.

But it works great over the long time because you don't have to pay as much to hold the customers and they're paying you more and more. and more so anyways. folks. I wanted to do that breakdown on paluture because there's a lot of misconceptions out there.

and hey, at the end of the day, not every growth stock is for everybody. and the growth stock sector really is not for the faint of heart as a whole. For me, I'm much more motivated to talk about a stock when it's beat down massively than I am when it's up massively even though the opposite works in terms of viewership and attention. But hey, you know what, You gotta just play the cycles and not let the cycles play you anyways.

Let me know what you think about Palantir down below.