The Rule of 40 adds a company's percentage revenue growth to its free cash flow margin rate. Anything 40 or above is considered good, so Palantir's 68% in Q3 is stellar. But a company and its stock aren't the same. Palantir's stock has soared to bubble-like valuations by almost any metric.
The Rule of 40 is a principle that states a software company's combined revenue growth rate and profit margin should equal or exceed 40%. SaaS companies above 40% are generating profit at a sustainable rate, whereas companies below 40% may face cash flow or liquidity issues.
Prediction: Palantir Stock Could Hit $100 By Year-End (but There's a Catch) Palantir is the top-performing stock in the S&P 500 in 2024. Shares have gained significantly and financial commentator Jim Cramer recently forecast the stock could keep soaring.
The Rule of 40 states that, at scale, the combined value of revenue growth rate and profit margin should exceed 40% for healthy SaaS companies. The Rule of 40 – popularized by Brad Feld – states that an SaaS company's revenue growth rate plus profit margin should be equal to or exceed 40%.
The 70:20:10 rule helps safeguard SIPs by allocating 70% to low-risk, 20% to medium-risk, and 10% to high-risk investments, ensuring stability, balanced growth, and high returns while managing market fluctuations.
The rule of thumb for growth rate expectations at a successful SaaS company being managed for aggressive growth is 3, 3, 2, 2, 2: starting from a material baseline (e.g., over $1 million in annual recurring revenue [ARR]), the business needs to triple annual revenues for two consecutive years and then double them for ...
The company has a market cap of about $3.5 trillion as of this writing. Palantir ended 2022 at $6.42 and was trading at roughly $72 on Dec. 11. From that perspective, the stock would have to rise to around $165 to be considered the next Nvidia from a percentage gain perspective, which is about another 130% increase.
For Palantir to reach $500 per share, it would need to increase by more than 1100% from its current price. While this is a long climb, it's also not unprecedented, especially in the tech sector, over time.
The 80/20 rule has applications in computing and social behavior but has also been observed in economics and business. When applying this principle to business, the common observation is that 20% of the activities in a business lead to 80% of the results.
My approach has been 40:40:20. That is, 40% in hybrid categories such as balanced advantage fund, multi asset funds, 40% in the diversified equity category and the last 20% should be for generating alpha from funds like thematic funds whether it is small cap or business cycle or a banking or infra fund.
A good EBITDA growth rate varies by industry, but a 60% growth rate in most industries would be a good sign.
Alongside its strong growth, Palantir is profitable, consistently producing around 20% profit margins. PLTR Profit Margin (Quarterly) data by YCharts. While some other software companies' profit margins can surpass 30%, 20% is still a noteworthy figure, as it shows that management values profitability alongside growth.
Palantir Technologies has a Altman Z-Score of 93.19, indicating it is in Safe Zones. This implies the Altman Z-Score is strong. The zones of discrimination were as such: When Altman Z-Score <= 1.8, it is in Distress Zones.
The basic trend is bullish on PALANTIR TECHNOLOGIES and in the short term, the price is attempting to correct.
Palantir has provided data analytics tools to government customers for intelligence gathering, counterterrorism and military purposes. Now Palantir aims to use generative AI to spur growth in the U.S. commercial market.
Palantir started 2024 trading near $15 per share, jumped in early February, then moved mostly sideways for roughly six months.
Palantir Could Deliver Strong Growth
Palantir is growing rapidly and delivering solid financials. During the last reported quarter (Q3), Palantir's revenue climbed 30% year-over-year, marking its sixth consecutive quarter of accelerating growth. This reflects the growing demand for its AI solutions.
Hypothetically, if Palantir can grow its revenue by 20% a year consistently, it would generate approximately $50 billion in revenue in 2040. Place a 10 times multiple on that, and the company would be worth about $500 billion. That's an increase in value of more than 10 times, but still far less than $1 trillion.
Patience is required to buy into the company's remarkable long-term prospects at a favorable valuation. Palantir's stock, with a forward PE of 160 and 300+ EV/EBITDA, is highly overvalued, pricing in speculative growth and offering a -4% CAGR and -61.74% margin of safety over five years.
Based on 17 Wall Street analysts offering 12 month price targets for Palantir Technologies in the last 3 months. The average price target is $46.57 with a high forecast of $80.00 and a low forecast of $11.00. The average price target represents a -30.76% change from the last price of $67.26.
The 10x rule in SaaS (Software as a Service) pricing strategy emphasizes that customers should receive a minimum of 10 times the value of the product in return on their investment. This rule guides SaaS companies in setting prices that align with the value delivered to customers.
The popular metric says that a SaaS company's growth rate when added to its free cash flow rate should equal 40 percent or higher. The rule has become a favorite of SaaS industry watchers, including boards and management teams, because it neatly distills a company's operating performance into one number.
Netflix is indeed an SaaS company that sells software to watch licensed videos on demand. It follows a subscription-based model whereby the customer chooses a subscription plan and pays a fixed sum of money to Netflix monthly or annually.