Think Palantir Stock Is Expensive? This Chart Might Change Your Mind.

Palantir Technologies (NASDAQ: PLTR) has been one of the hottest stocks in the artificial intelligence (AI) space. The company's early leadership position in AI software systems for businesses and government agencies has helped it post impressive business performance translating into stellar stock returns. The company's share price is up 288% over the last year, even with a significant pullback recently.

Palantir now has a market capitalization of roughly $148 billion as of this writing. At the valuation, the company is trading at roughly 136 times this year's expected earnings and 42 times expected sales.

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With these forward sales and earnings multiples, Palantir already commands a significant valuation premium -- and some very strong future growth is already priced into the stock. But as lofty as the company's current valuation looks by most metrics, there are some signs suggesting Palantir stock could offer substantial upside. And there's one in particular that investors should pay attention to.

Palantir is generating cash at an incredible level

With its last quarterly report, Palantir's sales increased 30% year over year to $726 million thanks to strong demand for its Artificial Intelligence Platform (AIP) product and other software services. Meanwhile, net income more than doubled to hit roughly $143.5 million. The company's top and bottom line performance were very strong and came in well ahead of Wall Street targets, and an even more encouraging trend has emerged. Take a look at the chart below.

PLTR Revenue (TTM) data by YCharts

Over the trailing-12-month period, Palantir has posted free cash flow (FCF) of $983.3 million on sales of roughly $2.65 billion. That means that the company has recorded a free-cash-flow margin of 37%. That's an impressive FCF margin even in the world of software-as-a-service (SaaS) companies, and it actually looks poised to climb even higher.

Palantir's business is highly scalable and still has a huge runway for long-term growth. With a very strong demand outlook and a fantastic margins picture, Palantir stock can still be a big long-term winner.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.