PLTR is the preferred choice over MSFT for adding to positions due to superior revenue growth (3x MSFT) and better profit margins.

Palanteer is generating a tiny fraction of the overall revenues that Microsoft is generating, but is already earning a profit margin, depending on the metric you look at, better than Microsoft.

Does that make Palunteer stock a better buying opportunity than Microsoft stock at current market prices? Microsoft generated $332 billion in revenue over the trailing 12-month period.

Palunteer a tiny tiny fraction of that at 6.156 billion.

Now, this makes Palunteer look bad. It makes Palunteer look like they're not generating any growth, but it's because of the scale differences.

If we were to zoom in to the most recent 12-month period, Palunteer generated revenue growth that was over three times the rate of revenue growth of Microsoft.

Palunteer is growing its business much more quickly than Microsoft is growing its business and the rate of increase is improving for Palunteer.

So that difference between the growth rates of Palunteer and Microsoft is working in Palunteer's favor.

Although the scale is unarguably significantly different, Palanteer's six billion is about 2% that of Microsoft 331 billion in revenue.

That being said, Palanteer's profit margins in some cases are even better or approaching that of Microsoft even at its much smaller scale.

And look at that rate of improvement there for Palanteer's operating profit margin, which has soared from -40% in 2021 all the way up to 43% in the most recent trailing 12-month period.

Now, Palanteer, even though it's at 43% in the most recent trailing 12 months, if we look at the average over the 5-year period, it would be significantly lower. So, Palanteer hasn't sustained the level of operating profitability that Microsoft has.

It hasn't yet proven that it can do this over a 5year stretch or a 10-year stretch, which is important for investors to consider.

So I mentioned in some metrics Palunteer is already exceeding Microsoft and one of those metrics is the return on invested capital where Palunteer has continued improving on this metric over the previous 5 years whereas Microsoft has been trending downward.

While Palanteer's ROIC has improved from negative 30% all the way up to 38%. And for Microsoft and Palanteer, they are comfortably above those thresholds. For Palanteer, it's nearly 3:1.

So regardless if we look at it individually or compared to the WACC, Palunteer's profitability according to this metric is better than that of Microsoft.

So now let's look at valuation and unsurprisingly Palunteer is trading at a more expensive valuation than Microsoft.

I mentioned Palunteer is growing its revenue at roughly three times the rate of Microsoft. Its profit margins are already exceeding Microsoft. it has bigger upside compared to Microsoft.

And so typically you would expect to see a business trading at a premium.

I don't know if it deserves this much of a premium over Microsoft. It's trading at a forward PE of 73 whereas Microsoft is trading at a forward PE of 21. So it's trading at more than 3x the value of Microsoft when measuring on a forward price to earnings basis.

When I look at Palunteer using my discounted cash flow valuation model, I calculated a fair value of $195 for the stock. The current market price is $170. So I calculate another 15% upside for Palunteer stock over the next 12 to 18 months.

By the way, as part of this calculation is where I calculate the weighted average cost of capital, which for Palunteer came to 13% and as I shared with you, it's ROIC is 38%. So it has a nearly 3:1 ratio.

And similarly with Palunteer, I would say Palunteer stock looks fairly valued when looking at the forward PE multiple and slightly undervalued when looking at the discounted cash flow valuation.

Palanteer not yet there in terms of Hall of Fame because it hasn't performed excellently for a long enough duration to earn that Hall of Fame ranking, but it's headed there. Revenue growth is excellent.

Profit margins are excellent. If it achieves this kind of performance for another 5 years, I wouldn't be surprised if I upgraded to the business as a Hall of Fame ranking, but not there yet.

Still, if I had to make a choice between these two and I could only pick one, I would pick Palunteer. I actually own Palunteer and Microsoft. So rather than picking only one of them, I picked both of them. I own both of them in my portfolio.

But if I had to add to my positions today and I had to pick between which one of the positions I would add to, I would add to my position in Palunteer before I would add to my position in Microsoft.