At $43 is it Time to Take Profit with Palantir?

October 10, 2024 at 08:54 AM EDT

Dhaka, Bangladesh- 07 February 2024: Palantir logo displayed on smartphone.

There’s a saying that stocks don’t move in one direction all the time. Palantir Technologies Inc. (NYSE: PLTR) is testing the logic behind that saying. PLTR stock is up a whopping 151% in 2024 nearly matching the 168% gain in NVIDIA Corp. (NASDAQ: NVDA).

Furthermore, the stock is up 24% in the last month alone. This has brought Palantir’s market cap close to $100 billion. For context, the company started out the year with a $37 billion market cap.

The recent stock price move corresponds to the company’s inclusion in the S&P 500. That was expected to raise the stock price as institutional money flowed in. However, many investors expected there to be an initial pullback.

However, that hasn’t been the case. But with the stock above $43 a share, it’s now moving into an area that is overbought by technical indicators. If you’re a long-term investor, any talk of selling Palantir at this price is quickly dismissed. But at its current price, many traders are asking if now is a time to take some profit. Without giving specific investment advice, let’s look at what you should know before making a decision.

Palantir is Objectively Overvalued

By any objective fundamental measure, PLTR stock is expensive. The price-to-earnings (P/E) ratio is 359.45, the price-to-sales (P/S) is 41.7, and the PEG is 4.6.

Even among technology stocks, metrics like those suggest that investors are pulling forward a lot of future earnings. However, bulls will argue that there’s a difference between price and value. And stocks like Palantir and NVIDIA can be overvalued for a long time before they grow into their valuation.

Palantir is Different

But it may be expensive for a reason. A key reason is Palantir’s ontology, which is how Palantir’s software makes large language models (LLMs) useful. In layman’s terms, Palantir’s ontology allows businesses to get useful insight from their AI investments.

Without a useful ontology, AI has little value for companies. However, as Palantir continues to stack up contracts from both the government and commercial sides, it’s clear that many people are seeing the value in Palantir’s software. It’s also important to note that Palantir’s platform gives its customers the ability to leverage multiple LLMs so customers can experiment with the strengths of various models within the same platform.

Why You Shouldn’t Sell PLTR Stock

Palantir skeptics will point out that there’s been a large amount of insider selling in PLTR stock in the last 90 days. You can find a list of these on the Insider Trades page for Palantir stock on MarketBeat. However, in many of these cases, the trading was done as part of a Rule 10b5-1 trading plan. That means that these trades were planned for a long time without the insiders having any knowledge of what the stock price would be at the time they sold.

This should remind investors that there are many reasons to sell a stock. In the case of Palantir, many of these executives may receive a significant part of their compensation as stock.

A Possible Options Trade

If you’re comfortable with options trading, an option could be to buy puts on PLTR with a longer-dated expiration date. That gives you the right, but not the obligation, to purchase shares if the stock falls to your strike price. If you do buy the shares, you’ll be getting them at the new price which could help your average cost if you bought the shares recently. Otherwise, you can simply let the option(s) expire, and you’ll have the same position in the stock.

One Size Doesn’t Fit All

The challenge with a stock like Palantir is that your decision to buy or sell will depend on many factors. For example, if you purchased shares when they were at $30 a share, the decision to take some profit may be easier than if you bought shares when the stock was trading for around $8.

It’s possible, but unlikely, that the stock will trade at that level again. Selling some of those shares gives you a larger profit, but you’ll never get shares at that low price again.

Tough call.

Ultimately, investors should always remember that, like corporate insiders, retail investors have many reasons to sell a stock. Only you can answer how you would feel if PLTR stock dropped by 20% or more.

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