Shareholders of Palantir Technologies would probably like to forget the past six months even happened. The stock dropped 20.3% and now trades at $147.41. This might have investors contemplating their next move.
Following the pullback, is now a good time to buy PLTR? Find out in our full research report, it’s free.
Why Is Palantir Technologies a Good Business?
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 $1.50 billion in Q4, and over the last four quarters, its year-on-year growth averaged 59.5%. 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 8.9 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 50.7% over the last year.
Final Judgment
These are just a few reasons why we're bullish on Palantir Technologies. After the recent drawdown, the stock trades at 48.6× forward price-to-sales (or $147.41 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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