One of the hottest names in artificial intelligence software is data analytics company Palantir Technologies (NYSE: PLTR). In recent years, it has rapidly evolved from a government contractor working closely with the U.S. military to a more prolific platform reaching key end markets in the private sector.
The company’s accelerating growth in sales and bottom line profits has also been noted. Investors have sent Palantir stock soaring 150% so far in 2024, compared with a nearly 20% return for the S&P 500 and Nasdaq Composite Index.
But in the midst of Palantir’s bright moment, the company’s chairman, Peter Thiel, just sold a large chunk of his stock. Below, I’ll break down how insider sales work and offer my opinion on whether now is a good time to follow Thiel’s lead and cash in.
Insider trading analysis
When insiders buy or sell stocks, it’s natural for outsiders to wonder what factors influenced their decisions. The Securities and Exchange Commission goes to great lengths to establish rules to mitigate egregious insider trading to the extent possible. One such protocol is Rule 10b5-1.
Essentially, 10b5-1 allows insiders to create a planned schedule for buying and selling stock based on certain parameters. The point is that it automatically triggers a buy or sell when a predetermined criterion set by the insider is reached. In other words, Rule 10b5-1 helps dispel the idea that insiders bought or sold securities based on nonpublic information.
This is exactly the situation with Teal. Between the last week of September and early October, the billionaire venture capitalist sold about 28.6 million shares of Palantir stock for a total of about $1.1 billion.
Image source: Getty Images.
Remember to think about the big picture
Thiel is a co-founder of Palantir and has been with the company since 2003. While his recent stock sales are high, it’s not the first time he’s made a profit over the past two decades.
In fact, Mr. Thiel sold about 20 million shares in four transactions between March and May, amassing a whopping $452 million in the process.
Should I sell my Palantir stock?
As I have written many times, there is no perfect time to sell stocks. Instead, investors should ask themselves tough questions about the company’s current level of growth and what its trajectory will be.
PLTR market capitalization chart
Palantir started this year with a market cap of $35 billion. In less than 10 full months, its value has now increased by 2.5 times. This is a clear sign of significant expansion in valuations.
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I’m bullish on the long-term outlook, but after such impressive performance in such a short period of time, it’s hard not to take profits. At the end of the day, profit taking largely depends on your personal financial situation.
If you need liquidity or feel more secure with a cash reserve, now may be the right time to sell your shares. The more important idea here is to keep the focus on the long-term thesis. If you’re optimistic that better days are ahead for Palantir and don’t need to raise money, it’s fine to maintain the current allocation.
I think the most prudent strategy is to maintain some exposure to the company while happily reducing your position and recovering your initial investment.
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Adam Spatacco holds a position at Palantir Technologies. The Motley Fool has a position in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Should you follow this insider’s lead and sell Palantir stock? Originally published by The Motley Fool
