This High Profit-Margin Business Promises Big Growth

Software companies remain one of the best places for tech investors. It doesn’t require physical facilities to manufacture hardware, and a piece of software can be copied endlessly with little extra cost. That creates high profit margins.

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  • Today, software companies that offer data and analytic services can best use a recurring revenue model to create steady and growing cash flows as well. That’s a particularly attractive space for investors in tech today.

    One clear winner in the space is Palantir Technologies (PLTR). While shares were caught up in speculative trading at the start of the year, they’ve since settled down. Yet the company continues to grow its list of corporate and government contracts, including the majority of an analytics contract for the US army.

    With shares still down nearly 50 percent from their all-time highs, the company’s ongoing operational success points to a much larger market cap in the years to come.

    Action to take: The company is still in its early stages, having been public for about a year. It’s still growing the business, so investors won’t get a dividend here. But with revenues growing around 50 percent annually, and that trend likely to continue, higher share prices are likely in time.

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  • For traders, a rebound in the markets and continuing contract growth points to a higher share price over the next few months. The January $30 calls, which last traded for around $1.25, are somewhat aggressive, but could move in-the-money in that timeframe.

     

    Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.