If you were the CEO of Palantir (NYSE:PLTR) and your CFO came and told you that your stock just got a 50% boost in its target price, you’d be pretty happy. Unfortunately, along with the $5 increase in Palantir stock, Citi analysts downgraded its rating from neutral to sell on Jan. 13.
The co-founder Peter Thiel and the rest of Palantir’s insiders must feel like they just got the rug pulled out from under them.
Trading at $26 as I write this, are Palantir’s best days behind it?
It’s Hard to Complain About Palantir Stock’s 259% Gain
That’s especially true if you’re Peter Thiel.
The billionaire, who Bloomberg says is worth $5.4 billion entering 2021, owes 37% of his current wealth to Palantir, up significantly from the software platform’s IPO at $7.25 a share in late September.
Palantir’s direct listing specified that insider shares couldn’t be sold until after it reported its 202o fiscal earnings. We should expect to see that listing sometime in February. Assuming the earnings come out in mid-February, its lock-up period will be approximately 135 days.
At first blush, given the average IPO lock-up agreement is 180 days, shareholders probably see this as a short hold post-IPO.
Reducing Pent-Up Demand
However, in most direct listings where no new shares are issued to the public, there is no lock-up period, reducing the pent-up demand for insiders to sell their shares at the first available moment.
So, when Palantir stock reports its fourth-quarter results, should the results be less than stellar, insiders will likely be in a hurry to sell some of their shares.
In Thiel’s case, who directly and indirectly through Founders Fund, his venture capital firm, owns more than 28% of Palantir’s votes and holds a 21% economic interest in the company worth $9.7 billion based on 336.1 million shares.
If anyone wants to reduce their position in Palantir, it’s Thiel. However, it’s hard to feel sorry for the billionaire.
Are Its Best Days Behind It?
According to Tyler Radke, the Citi analyst who downgraded PLTR to a sell, believes that its sales growth is set to slow as contracts it got due to Covid-19 come to an end in the second half of 2021 and into 2022.
Further, the analyst doesn’t believe it has spent enough on the commercial business to make inroads in a very competitive field. Therefore, he feels in the coming quarters that investors will be disappointed by the lack of success it’s been able to make in this area, resulting in a significant downturn.
Rough Roads Ahead For Palantir?
In my early December article about Palantir, I argued that PLTR was a buy for speculative investors who could afford to lose 100% of their investment as it won’t make money until 2022.
Secondly, I thought investors should only buy half a position and wait to buy the rest when it falls back into the teens. This is actuallythe closest it’s gotten over the past month is $23. I believe investors still ought to wait until after it reports Q4 2020 results before buying any more stock.
I definitely believe it’s got a tough road ahead of it.
That said, while a challenge exists, there’s also a possibility that it fools the experts and delivers unexpectedly robust growth in February.
InvestorPlace’s Divya Premkumar believes that Palantir’s best days are far from over.
[T]he firm’s technology caters perfectly to the digital economy. In the era of businesses going virtual, Palantir’s entry into the market could not have come at a better time,” Premkumar wrote on Jan. 15.
“The company plays a key role in allowing agencies to process data with artificial intelligence. This is then delivered in the form of a turn-key-software. Helping businesses make the best use of their data this way is a largely untapped market.”
He goes on to discuss other growth catalysts that make it a buy.
The Bottom Line
I must admit that I have mixed feelings about Palantir stock.
Unlike stocks like Lululemon (NASDAQ:LULU) or Square (NYSE:SQ) that I’m 100% confident are excellent long-term buys at current prices; I do believe that Palantir’s share price has gotten ahead of itself despite the catalysts my colleague mentions.
Therefore, unless you’re planning to hold for 3-5 years, I would hold tight and wait for prices under $20. I think you’ll find that it provides a much greater margin of safety.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.