Which Software Stock Is the Better Quality Buy: Palantir Technologies (PLTR) vs. Park City Group (PCYG)

Given enterprises' escalating dependence on software solutions, the software industry stands ready for substantial expansion in the coming years. Within this context, I assessed two software stocks, Palantir Technologies Inc. (PLTR) and Park City Group, Inc. (PCYG), to determine a better-quality buy now. 

The COVID-19 pandemic marked a turning point for numerous businesses. Small and large enterprises swiftly restructured workflows, expediting IT focal points and tech strategies. Today, as digital products shape resilient, flexible businesses, software developers and IT experts crucially drive the construction of the post-pandemic era.

A Grand View Research report indicates that the global Software as a Service (SaaS) market size is expected to grow at a CAGR of 13.7% and reach $819.23 billion in revenue by 2030. A significant driver is the escalating integration of public cloud services within enterprises, fueling substantial market expansion.

Companies are increasingly embracing cloud-native solutions for application development, team coordination, and communication. Gartner, Inc.'s (IT) latest forecast predicts a 21.7% surge in worldwide end-user spending on public cloud services, reaching $597.30 billion in 2023, a significant rise from $491 billion in 2022.

IT further foresees that by 2026, a substantial 75% of organizations will adopt a digital transformation approach built upon the cloud as the core foundational platform.

While cloud infrastructure and platform services are propelling the most significant spending growth, the SaaS domain retains its lead as the largest segment in the cloud market by end-user investment. SaaS spending is anticipated to escalate by 17.9%, reaching a cumulative $197 billion in 2023.

Furthermore, technologies such as AI, cybersecurity, blockchain, software outsourcing, and IoT are bolstering the sector by spurring innovation, fortifying security, streamlining development processes, and enabling immersive, interconnected experiences. This is enhancing efficiency and the overall quality of software products and services.

In terms of price performance, PLTR is a clear winner with 17.3% returns over the past month compared to PCYG’s 7.1% decline. Moreover, PLTR has surged 146.6% over the past three months, while PCYG climbed 46.9% during the same period. Also, PLTR has jumped 129.5% over the past nine months compared to PCYG’s 78.3% gains.  

But which stock is a better buy now? Let’s find out.

Recent Developments

On August 3, PLTR and WesTrac Pty Ltd, a global powerhouse among Caterpillar® dealers and a premier supplier of heavy mobile equipment and post-sales services to Australia's mining and construction industries, announced a multi-year enterprise expansion of their partnership to deploy Foundry across core operations.

In this partnership, the foremost objective is the implementation of Foundry within WesTrac's Component Rebuild Centres and Inventory Management teams. This strategic move not only enhances WesTrac's operations but also expands PLTR's market reach, showcasing Foundry's efficacy.

On July 19, PCYG subsidiary ReposiTrak, which operates the world's largest food supply chain network of approximately 30,000 retailers, wholesalers, and suppliers, unveiled ReposiTrak Recall Management.

This system enables quick and accurate recalls by utilizing its extensive network of the food supply chain. With this development, PCYG would be better able to uphold its brand image and ensure consumer security, positioning itself up for growth as an industry leader and perhaps boosting its revenues.

Recent Financial Results

For the fiscal first quarter that ended March 31, 2023, PLTR’s adjusted income from operations increased 6.6% year-over-year to $125.11 million. Its adjusted EBITDA grew 9.6% from the year-ago value to $133.43 million. Also, its adjusted net income attributable to common stockholders rose 140.2% year-over-year to $107.40 million.

However, as of March 31, 2023, the company’s cash and cash equivalents stood at $1.26 billion, compared to $2.60 billion as of December 31, 2022.

For the fiscal third quarter that ended March 31, 2023, PCYG’s revenue increased 5.9% year-over-year to $4.82 million. Its net income and net income per share grew 52.8% and 60% from the prior year’s period to $1.66 million and $0.08, respectively.

Moreover, as of March 31, 2023, the company’s cash stood at $22.94 million, compared to $21.46 million as of June 30, 2022.

Past And Expected Financial Performance

Over the past three years, PLTR’s revenue increased at a CAGR of 34.8%. Moreover, its total assets and levered free cash flow grew at CAGRs of 29.5% and 88.5%, respectively, during the same period.

Analysts expect PLTR’s revenue to increase 15.9% year-over-year to $2.21 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 255.8% from the prior year to $0.21. Also, the company surpassed the consensus revenue estimates in all four trailing quarters.

PCYG’s EBITDA increased at a CAGR of 44.8% over the past three years. Its net income and EPS grew at CAGRs of 60% and 103.2%, respectively. Furthermore, the company’s operation income and levered free cash flow rose at CAGRs of 58% and 216.9%, respectively, during the same time frame.

The consensus revenue estimate of $21.45 million for the fiscal year ending June 2024 reflects a 12.5% year-over-year improvement. Likewise, the consensus EPS estimate of $0.35 for the current year is expected to grow 20.7% from the previous year. In addition, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Valuation

In terms of forward P/E, PCYG is currently trading at 34.67x, 90.6% lower than PLTR, which is trading at 370.60x. Moreover, PCYG’s forward EV/Sales multiple of 7.85 is 51.8% lower than PLTR’s 16.29. Additionally, PCYG’s forward EV/EBITDA of 22.25x is 65.4% lower than PLTR’s 64.35x.

Thus, PCYG is relatively affordable.

Profitability

PLTR’s trailing-12-month revenue is 104.94 times what PCYG generates. However, PCYG is more profitable, with a trailing-12-month gross profit margin of 82.57% compared to PLTR’s 78.75%. Also, PCYG’s trailing-12-month EBITDA margin of 31.54% compares with PLTR’s negative 4.59%.

In addition, PCYG’s trailing-12-month net income margin of 28.13% compares to PLTR’s negative 12.87%. Furthermore, PCYG’s trailing-12-month ROTA and ROTC of 9.76% and 6.81% compare to PLTR’s negative 3.28% and 2.58%, respectively.

POWR Ratings

PLTR has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, PCYG has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has a D grade for Stability, in sync with its 24-month beta of 1.89. On the contrary, PCYG has a B grade for stability, justified by its 24-month beta of 0.28.

In addition, PLTR has a B grade for Quality. PLTR’s trailing-12-month gross profit margin of 78.75% is 63.4% higher than the industry average of 48.20%. Moreover, its trailing-12-month levered FCF margin of 21.35% compares to the 7.28% industry average.

On the other hand, PCYG has an A grade for Quality, in sync with its higher-than-industry profitability. Its trailing-12-month gross profit margin of 82.57% is 71.3% higher than the industry average of 48.20%. Furthermore, its trailing-12-month levered FCF margin of 34.57% is 374.9% higher than the 7.28% industry average.

Of the 25 stocks in the Software - SAAS industry, PLTR is ranked #19, while PCYG is ranked #7. 

Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Sentiment. Click here to view PLTR’s ratings. Get all PCYG ratings here.

The Winner

Rapid innovation and digitalization have heightened businesses' reliance on software solutions. The quick uptake of cloud services to improve operations is expected to drive industry expansion. Simultaneously, several technological improvements have boosted the efficiency, competitiveness, and overall quality of software goods and services.

Quality software stocks PLTR and PCYG are positioned to benefit from the industry’s promising growth prospects. However, considering PLTR’s comparatively weaker financial performance, higher valuation, and relatively lesser probability, its competitor, PCYG, could be a better buy now.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Software – SAAS industry here. 

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…  

Steve Reitmeister’s Trading Plan & Top Picks >

PLTR shares were trading at $17.73 per share on Monday afternoon, down $0.47 (-2.58%). Year-to-date, PLTR has gained 176.17%, versus a 18.49% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

More...