3 Reasons We're Fans of Palantir (PLTR)

Palantir has been on fire lately. In the past six months alone, the company’s stock price has rocketed 95.2%, reaching $154.20 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now still a good time to buy PLTR? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Are We Positive On Palantir?

Started by Peter Thiel after seeing US defence agencies struggle in the aftermath of the 2001 terrorist attacks, Palantir (NYSE:PLTR) offers software as a service platform that helps government agencies and large enterprises use data to make better decisions.

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Palantir’s billings punched in at $939.3 million in Q1, and over the last four quarters, its year-on-year growth averaged 38.6%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Palantir is extremely efficient at acquiring new customers, and its CAC payback period checked in at 14.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Palantir more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Palantir has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 47.2% over the last year.

Final Judgment

These are just a few reasons Palantir is a rock-solid business worth owning, and after the recent rally, the stock trades at 95.1× forward price-to-sales (or $154.20 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

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