Market Fetes Planet Labs' Earnings Beat, But High Multiples, Dilution Risks Loom
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Jason Ditz1.41K FollowersFollow5ShareSavePlay(9min)CommentsSummaryPlanet Labs is downgraded from hold to sell due to unsustainable momentum and excessive valuation multiples.PL's Q3 revenue growth is driven almost entirely by Defense and Intelligence, with commercial and civil sectors stagnating or declining.Convertible notes pose imminent dilution risk, potentially increasing shares outstanding by 12% if current prices persist.Despite progress toward break-even, PL's fundamentals do not justify a 15x book value multiple; profit-taking is advised. loops7/iStock via Getty Images When last we touched on Planet Labs PBC (PL) in October, the stock had just surged on revenue growth centered around their plan to transition from a data-first company to a satellite maker.This article was written byJason Ditz1.41K FollowersFollowI’m Jason Ditz and I have 20 years of experience in foreign policy research. My work has appeared in Forbes, Toronto Star, Minneapolis Star-Tribune, Providence Journal, Washington Times and the Detroit Free Press, as well as American Conservative Magazine and the Quincy Institute for Responsible Statecraft. I have been writing investment analysis, with a focus on deep-discount value plays, for over 25 years. I I got my start analyzing securities for a stock-picking contest on the now defunct StockJungle in college. After winning one of the top prizes for quarterly performance, I was hired to write a monthly article about micro-cap stocks, again with a value perspective. After StockJungle went belly-up, with its focus on momentum investing, I started to take a close interest in the contrarian investment philosophy of David Dreman. I began writing for Motley Fool and ultimately Seeking Alpha. My goal is to find underappreciated companies with a focus on returning value to investors.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does PL's Q3 revenue mix impact its growth stability?PL's 70% Defense and Intelligence growth drives overall revenue, but heavy reliance on military spending introduces volatility and uncertainty for future growth.What is the dilution risk from PL's convertible notes at current share prices?If PL's stock remains above $15.50, up to 12% dilution is likely next quarter as $460 million in notes convert, further inflating already high valuation multiples.Is PL's current valuation justified by its financial performance and outlook?With a 15x price/book ratio, lack of GAAP profitability, and limited margin improvement, PL's valuation is disconnected from fundamentals; downside risk outweighs upside at current levels.Recommended For You