Palantir’s stock has been a huge winner this year.
Palantir Technologies (PLTR 11.14%) has been one of the hottest stocks in the market this year, with the stock trading up more than 246% year to date as of this writing.
CEO Alex Karp took a victory lap following his company’s most recent earnings, saying the results were so strong that “I almost feel like we should just go home.” Later he took a swipe at any critics who challenged his sanity in making such a comment.
But while Karp has been celebrating the success of his company and its stock, he has also been aggressively selling shares of Palantir. This of course begs the question, should investors follow Karp’s lead and sell Palantir stock?
Increased selling among Palantir insiders
Karp has been a pretty consistent seller of Palantir stock since late 2020, using what is called a Rule 10b5-1 plan. Under these plans, company executives and other insiders set up selling instructions to brokers to sell shares based on a variety of parameters. It can be as simple as selling a set amount of shares on set dates regardless of price, or it could use a set of much more complicated triggers.
Karp appears to be using a more complicated set of triggers, but whatever they are have led to a huge increase in selling by the CEO in the couple of months. All of these recent sales have been through the exercise and then sale of stock options.
Karp’s increased selling began in mid-September when he exercised options and sold 9 million shares at an average price of $36.18, worth $325.6 million.
Just ahead of earnings he exercised options and sold an additional 5.66 million shares at an average price of $45.01, taking home $254.6 million. Then immediately after earnings, he exercised options and sold more than 12.3 million shares at an average price of $52.71, good for proceeds of $650.6 million.
Before the acceleration in selling, Karp’s sales were more in the $15 million to $22 million range.
Karp wasn’t the only insider to sell shares after earnings. Chief Accounting Officer Heather Planishek and Director Lauren Friedman Stat also sold shares via 10b5-1 plans.
This isn’t the first time Palantir has seen big insider selling, with Chairman Peter Thiel setting up a Rule 10b5-1 plan and quickly disposing of more than 28.5 million shares in September and early October.
Image source: Getty Images.
Should investors follow Palantir’s Karp and sell shares?
Palantir is undoubtedly a great company. It initially proved itself by providing data gathering and analytic services to the U.S. government and helping it with such mission-critical tasks as fighting terrorism and tracking COVID-19 cases. It has since become a big artificial intelligence (AI) winner, with the U.S. commercial sector now embracing its AI platform.
Palantir’s big AI push into the commercial sector has helped it see accelerating revenue growth, with revenue jumping 30% year over year last quarter. It was the company’s fifth straight quarter of revenue growth acceleration, demonstrating the momentum its solutions have. The U.S. commercial sector led the way with a 54% increase in revenue, or 59% when excluding strategic commercial contracts. U.S. government revenue, meanwhile, soared 40% year over year, as the government also has started to embrace its AI solutions.
Right now, the company is doing a great job of both bringing in new customers and expanding with existing customers. However, the biggest issue when it comes to Palantir stock is not its operational performance, it’s with Palantir’s valuation. Following the recent surge in stock price, the stock now trades at a forward price-to-sales (P/S) ratio of 41 times 2025 analyst estimates.
PLTR PS Ratio (Forward 1y) data by YCharts
For a stock growing its revenue by around 30%, that valuation is pretty extreme. While Palantir is a great company, at some point valuation does matter. CEO Alex Karp seems to recognize this as well, which is why he has accelerated his selling of the stock in recent months.
Back in August, I wrote that it was not too late to buy Palantir stock. With this latest surge in price, I’m stepping back from that view. I think the smart thing to do currently is to follow the lead of Karp and other insiders and take some profits in the stock after a great run.
Geoffrey Seiler 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.
