Think Palantir Stock Is Expensive? This 1 Chart Might Change Your Mind.
Key Points
Palantir Technologies stock has surged more than 2,000% since it launched its AI data mining solution.
The stock looks extraordinarily expensive when measured using the most common valuation metrics.
Palantir is posting accelerating revenue and expanding free-cash-flow margins.
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Palantir Technologies (NASDAQ: PLTR) has been one of the hottest stocks of 2025, gaining 134% year to date. The company is a pioneer in creating artificial intelligence (AI) systems for governments and businesses, leveraging that expertise to develop its Artificial Intelligence Platform (AIP). The resulting demand has supercharged its results, sending its stock price surging more than 2,000% since the release of AIP in April 2023.
At the same time, Palantir's market cap has jumped from $16 billion to $422 billion -- despite plunging as much as 25% last month. The stock still fetches a premium valuation, however, selling for 244 times this year's expected earnings and 96 times expected sales.
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Image source: Getty Images.
While significant expectations are built into Palantir's stock price, another gauge helps provide important context.
Show me the money
Although it appears expensive using the price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio, investors have been willing to pay a premium for the stock. That's primarily because Palantir has been growing by leaps and bounds.
In the third quarter, revenue jumped 63% year over year, while its earnings per share (EPS) soared 200%. This marked the ninth consecutive quarter of accelerating revenue growth, driven by its U.S. commercial revenue, which jumped 121%. Palantir also raised its outlook, guiding for revenue growth of at least 61%, though the company has a history of outpacing its own expectations.
Data by YCharts
As previously mentioned, traditional valuation metrics struggle when faced with a fast-growing company, and Palantir is no exception. However, there's an old business adage worth remembering in this case: "Cash is king."
Palantir has become a cash-generating machine. Over the past year, the company has delivered nearly $3.9 billion in revenue, turning $1.8 billion into free cash flow, resulting in a free-cash-flow margin of 47%. Put another way, Palantir is able to turn every dollar of sales into $0.47 in free cash flow -- which is superb -- and that percentage continues to climb.
The combination of surging demand and growing margins suggests Palantir isn't as expensive as it looks.
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Danny Vena, CPA has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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