Palantir Technologies (PLTR): 3 Reasons We Love This Stock

Palantir Technologies currently trades at $193.89 and has been a dream stock for shareholders. It’s returned 599% since December 2020, blowing past the S&P 500’s 85.6% gain. The company has also beaten the index over the past six months as its stock price is up 35.4% thanks to its solid quarterly results.

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 for active Edge members.

Why Are We Positive On PLTR?

Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ:PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.

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 Technologies’s billings punched in at $1.12 billion in Q3, and over the last four quarters, its year-on-year growth averaged 52.2%. 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 measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Palantir Technologies is extremely efficient at acquiring new customers, and its CAC payback period checked in at 9.8 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 Technologies 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 Technologies 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 51.2% over the last year.

Final Judgment

These are just a few reasons why Palantir Technologies is one of the best software companies out there, and with its shares outperforming the market lately, the stock trades at 85.9× forward price-to-sales (or $193.89 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.

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