Palantir (NYSE:PLTR) stock continues to benefit from revenue growth in general, and the expansion of its sales to the commercial sector were strong last quarter.

But I remain quite concerned about the company’s profitability and its huge stock-based compensation.

Meanwhile, I’ve still seen no real signs that the company’s technology is meaningfully superior to that of its competitors, and the valuation of PLTR stock remains quite elevated.

What’s more, I’m starting to become concerned about the size of Palantir’s operating expenditures.

Given all of these points, I recommend that investors sell the shares into their current strength.

A Closer Look at PLTR Stock

As has been well-documented, Palantir’s sales growth was impressive in the second quarter. Specifically, its overall revenue jumped 49% year-over-year, and the company’s U.SA. commercial revenue soared 90% year-over-year.

The company has increased its penetration of the U.S. commercial market, although some of the increase could have been brought about by an easy comparison caused by the coronavirus pandemic in Q2 of 2020.

Much less impressive and much less remarked upon were some of Palantir’s important Q2 profitability metrics.

Palantir’s loss from operations came in at a large $146 million, equaling an operating margin of -39% and nearly 50% higher than its loss from operation in Q2 of 2020, which were $88 million.

Last quarter, Palantir’s cash flow from operations was a pretty paltry $23.75 million, good for a margin of just 6%. Its total net loss jumped to $138.6 million, up from $110.5 million during the same period in 2020.

Stock-Based Compensation and Spending Increases

I’m not opposed to a company using some of its shares to reward its employees. Even less so after an IPO.

It becomes an issue when a firm’s stock-based compensation (SBC) is more than one-third of its revenue, I start to worry that the company could be using SBC to make its “adjusted” profit numbers look better.

Additionally, very large SBC could, over time, hurt shareholders by putting downward pressure on the stock price.

Palantir’s SBC came in at nearly $233 million, well over 50% of the $376 million of sales that it reported. What’s more, in Q2, the company’s SBC was much higher than in the previous quarter, when its SBC was nearly $194 million.

Palantir’s IPO was in September 2020. I had thought that its SBC would drop as we got further away from the company’s IPO. To my surprise, the SBC seems to be going in the other direction.

In Q2, the company’s sales and marketing costs soared nearly 60% year-over-year to $162 million, while its general and administrative spending jumped nearly 70% year-over-year to $158 million.

No Signs of a Big Technical Edge

Those who are bullish on PLTR stock say that the company has unparalleled, transformative technology, although they never seem to be able to explain how or why its AI is superior to that of its competitors.

Reading through the transcript of the company’s Aug. 12 Q2 earnings conference, I was unable to find any concrete signs showing that Palantir is technically superior to the competition.

The firm mentioned various technologies that it’s using, including satellites, drones, on-premise networks and classified (i.e. secure) networks, but all of these technologies are quite widely utilized.

What’s more, there seems to me to be a contradiction between the huge amount that Palantir is spending on sales and marketing, on the one hand, and its low margins on the other.

If its technology is really so exceptional and transformative, common sense suggests it would be able to spend much less marketing its systems and charge sufficiently high prices to be much more profitable.

Remember, the company has been around for 18 years, so it’s had plenty of time to establish its brand and the strength of its technology.

Conversely, Upstart (NASDAQ:UPST), whose AI software seems to me to be truly transformative, just reported Q2 net income from operating activities of $47.4 million and a positive operating margin of 19%.

As I noted above, Palantir reported a sizeable loss from operations and its operating margin was deep in the red. In Q2, Upstart spent less than 3% of its revenue on sales and marketing, versus Palantir’s 43%.

In my book, Upstart’s results look like those of a company with truly unparalleled, highly transformative technology, while Palantir’s results just do not look that way.

By the way, I regret not buying Upstart’s shares on their last dip, which I had considered doing, and will look for another opportunity to buy them on weakness.

The Bottom Line on PLTR Stock

Palantir’s growth was strong, but some of its profitability metrics remain quite disappointing.

Trading at a trailing price/sales ratio of 34.5, PLTR stock has the valuation of a disruptor.

I haven’t seen any evidence that it is disruptive, and its financial results suggest that it is not in that category.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. However, he may buy UPST stock as early as three days following the publishing of this article.  The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.