Peter Thiel is best known as one of the co-founders of PayPal and an early investor in Metaplatformsthen known as Facebook. After leaving PayPal, he co-founded another company, Palantir Technologies (NYSE:PLTR)where he is chairman.
According to Securities and Exchange Commission (SEC) filings, Thiel sold more than $1 billion worth of Palantir stock during the last few days of September and the first day of October. These sales came after the company officially became a member of the S&P500 on September 23. Thiel also lost about $400 million worth of Palantir stock earlier this year.
Thiel’s sales were executed automatically as part of the 10b5-1 plan adopted in May. That plan automatically sells Thiel’s shares when certain criteria are met, effectively reducing the influence of insider information on the selling decision. Thiel has now exhausted the authorization until December 31 of next year.
Thiel remains one of the largest shareholders in Palantir, which has a market capitalization of about $83 billion at the time of writing. He also owns super voting shares along with his co-founders, allowing the three to maintain control of the company. But it may be time for investors to consider whether they should sell Palantir stock, too.
A big name in big data
Palantir started offering big data analytics to government agencies. The CIA’s venture capital arm was the only early outside investor (besides Thiel’s own venture capital firm). Management eventually tailored its software for large enterprises, but until recently remained largely focused on high-performance large organizations.
Commercial customers are growing rapidly. Co-founder and CEO Alex Karp points out in his most recent letter to shareholders that commercial customers have grown from 14 to 295 over the past four years. That growth is supported by the launch of Palantir’s Artificial Intelligence Platform (AIP). AIP makes it easier for customers to explore and interact with their data in natural language and automate workflows. It can also help develop applications using enterprise datasets.
As the company grows, Palantir is demonstrating tremendous operational clout. Adjusted operating margin increased from 23% in the second quarter of 2022 to 37% last quarter. It has also been profitable for seven consecutive quarters under generally accepted accounting principles (GAAP), earning it a spot in the S&P 500.
The outlook for the company also remains strong. As mentioned, it only has 295 commercial customers. There are many more large organizations with big data needs that could adopt Palantir’s software as they move away from in-house solutions. Management expects full-year 2024 revenue of approximately $2.75 billion and adjusted operating income of approximately $970 million. This represents growth of 24% and 53% respectively. And Palantir should be able to maintain that strong revenue growth in the coming years as it expands its commercial operations and government contracts deliver stable revenue.
Thiel’s selling suggests something about the stock
Despite Palantir’s strong growth and excellent management execution, it’s hard to justify the current price of Palantir stock.
The stock currently trades at about 87 times analysts’ consensus expectations for 2025. And while the company is showing strong earnings growth as it leverages its fixed costs with more commercial customers, that valuation makes it extremely risky to own shares.
First, the high valuation will magnify any potential loss of profit. Slower-than-expected growth will drastically reduce the price of stocks because they are based on such a high multiple of earnings. Meanwhile, earnings numbers aren’t likely to push the stock up as much as has been the case with other expensive AI stocks.
But even if Palantir continues to grow its revenue at an average of 20% by the end of the decade and expands its operating margin, it’s still hard to justify the current price. Morningstar analyst Malik Ahmed Khan’s bull case models revenue growth of 26% and GAAP operating margin expanding to the low 30s over the next five years from 16% today. The fair value he places on the stock under those circumstances is just $26 per share, less than 30% of the current price.
While the underlying business is great, Palantir’s stock is very expensive. Patient, long-term investors can get an edge on the stock in the long run, but there are probably better investment opportunities out there right now. It may be a good time to sell and put the money into another growth stock.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Levy holds positions in Meta Platforms. The Motley Fool holds positions in and recommends Meta Platforms, Palantir Technologies, and PayPal. The Motley Fool recommends the following options: $70 short calls in December 2024 on PayPal. The Motley Fool has a disclosure policy.
Billionaire Peter Thiel just sold $1 billion worth of Palantir stock. Do you also have to pay out? was originally published by The Motley Fool
