I'm simply in awe of the growth that PortalPlayer (NASDAQ:PLAY) reported in its earnings release last night. Perhaps I shouldn't be surprised, because the company's chip designs and development kits power Apple's (NASDAQ:AAPL) iPod, as well as hard drive-based MP3 players from Koninklijke Philips Electronics (NYSE:PHG) -- feel free to substitute Royal for Koninklijke --and others.

As you may have seen in the press release, revenues quadrupled against the same period last year and the company reported strong profits, as well. But what has me impressed is the quality of the growth. While sales soared, receivables were held in check and inventory growth was a robust 383%, but that's still below the sales growth and below the growth in payables. The company didn't provide a cash flow statement in its earnings release, but by my rough-cut indicates the company turned free-cash-flow growth that is at least on par with net income.

It's rare to see a company turn in a performance like this, even this early in its life. At the moment PortalPlayer is truly dominating its niche of chips and solutions that focus on the MP3 player market. How long that will last is an open question, but the company has used its profitability to increase research and development, and is working on new generations of chips that increase battery life in players and add video support. All this should help to keep the competition at bay for a little while at least.

When PortalPlayer came public late last year, I felt that investors -- or perhaps speculators --overreacted in bidding up the shares so quickly. Not because I thought the company was a poor investment, but I didn't feel the risk of a newly public company that was dependent on one customer (Apple) for close to 90% of its sales warranted such a large valuation before proving sustained profitability. In short, I agreed with what fellow Fool Tom Taulli had to say about the IPO market at the time, and felt that PortalPlayer was simply being swept up in the hoopla.

While I'm still not comfortable with the company being very dependent on one customer, I am beginning to think I was a bit out of tune on PortalPlayer. The company's first quarter is traditionally one of its weaker quarters; if the remaining three quarters of the year simply match the first quarter, it's not difficult to get to a valuation for PortalPlayer that is very compelling on a P/E basis.

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Fool contributor Nathan Parmelee has no financial interest in any of the companies mentioned.