Stock prices of Palantir Technologies (NYSE: PLTR) have roughly doubled in 2024 so far. Coincidentally, co-founder and chairman Peter Thiel recently filed to sell the shares of Palantir he owns, which are valued at nearly $1 billion. More specifically, the billionaire entrepreneur (who also helped co-found PayPal) has adopted a so-called Rule 10b5-1 plan to sell nearly 28.6 million Palantir shares by the end of 2025.
Thiel appears to be seizing this opportunity to lock in the gains these stocks have been collecting. The question for investors is: should they follow suit?
Thiels Rule 10b5-1 plan
Before we discuss the investment thesis on Palantir, let’s look at what Thiel is doing by implementing a Rule 10b5-1 plan. This rule is designed to help company insiders sell stock in a way that doesn’t incur charges of illegal insider trading. Predetermined sell instructions are given by a company insider and then executed by a brokerage. Some of the instructions are made public. Insiders can set parameters for when a stock can be sold, such as at a certain price or on certain dates. They can set it so that a certain number of shares or a certain dollar amount are sold.
Once the plan is in place, there is a cooling-off period before any trades are executed. Changes to the plan can only be made during an open trading window and when the insider has no material nonpublic information that could affect the stock price. Thiel’s sales are made through Rivendell 7, one of four investment vehicles he owns that hold Palantir shares.
Thiel has previously initiated Rule 10b5-1 plans to sell Palantir shares. He entered into a plan to sell 20 million shares in December 2023, which was announced in February 2024. His first trade under that plan was for more than 7 million shares at an average price of $24.79 on March 12. The plan then executed a trade of nearly 13 million shares at an average price of $21.11 on May 10. That earlier plan had a completion date of March 2025 but was completed much earlier.
Thiel currently owns approximately 99.5 million shares of Palantir stock through his Rivendell 7, Rivendell 25, PLTR Holdings and STS Holdings investment vehicles. If the plan comes to fruition, it would reduce his total holdings in Palantir by nearly 29% to 70.9 million shares. As of early 2024, Thiel owned 148.9 million shares of Palantir stock, so he plans to significantly reduce his stake over the next 16 months.
Should investors follow Thiel’s lead and take profits?
Palantir was trading for around $6 a share when 2023 began, so the stock (now valued at around $35 a share) has had an incredible run in a relatively short period of time. Given the stock’s strong performance, it’s perhaps not surprising that Thiel is taking some money off the table. For investors who saw big gains in the stock, it could certainly be wise to follow suit and take some profits.
Palantir has proven itself to be a company with great technology, helping governments with mission-critical tasks for years, including fighting terrorism and helping track the spread of COVID-19. Meanwhile, its artificial intelligence (AI) platform is being used by companies across industries with a variety of use cases.
The company’s valuation, however, appears to be getting ahead of itself at the moment. After its meteoric rise, the stock now trades at a forward price-to-sales (P/S) ratio of over 27.5 based on analyst estimates for 2024. That’s a massive multiple typically reserved for hypergrowth companies, which Palantir isn’t.
In fact, Palantir’s government business segment has been a bit of a bumpy ride. Last year, government revenue grew just 14%, keeping overall revenue growth at just 17%.
Government revenue growth has accelerated, resulting in Palantir’s total revenue growth increasing 27% year over year in the latest quarter. That’s solid growth, but still not the hypergrowth Palantir would need to justify its current valuation.
Palantir has the makings of a great company, but at some point, valuation matters. Current investors might consider taking a cue from the company’s co-founder and offloading their positions, thereby capturing some of the gains.
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Geoffrey Seiler has positions in PayPal. The Motley Fool has positions in and recommends Palantir Technologies and PayPal. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
Palantir’s Billionaire Chairman Just Filed a Request to Sell $1 Billion in Stock. Should Investors Follow Suit? was originally published by The Motley Fool
