We came across a bearish thesis on Palantir Technologies Inc. (NASDAQ:PLTR) on ValueInvestorsClub by ladera838. In this article, we will summarize the bears’ thesis on PLTR. The company’s shares were trading at $67.00 when this thesis was published, vs. the closing price of $83.42 on Mar 03.
PLTR builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations in the United States, the United Kingdom, and internationally.
PLTR has been one of those stocks that have been rising due to an investor bias towards the sector. The valuation seems so overheated that the possibility of its business growth justifying its price seems unlikely. Since last May, the stock has almost quadrupled, with tailwinds for the AI sector being the primary driver for such an outstanding performance.
A cause for concern has been the constant selling by insiders since 2023. Many employees have offloaded shares at a price as low as $16.11. While the business environment seems favorable for PLTR, even employees feel that the price rise is not justified by the business potential. One of the key personnel selling is Peter Thiel, an experienced investor who also happens to be one of the more informed insiders. Alexander Carp, the CEO, has also been selling large quantities at a price range of $36-64. These events are a contrast to the narrative that the management wants to believe. According to its Director Alexander Moore, PLTR’s move to NASDAQ is a strategic move to reward retail investors who can benefit from funds flows worth billions of dollars. Moore just happens to be another insider frantically selling shares from 2023.
The stock price has peaked at $125 and has settled at ~$84 and many sell-side analysts believe that this price reflects the best-case scenario for PLTR. None of the targets is as high as its current level with Wedbush Securities assigning the highest value at $75. On the flip side, the lowest price target has been set at $11 by RBC Capital Markets.
PLTR trades at +60x EV/Revenue and ~400x EV/EBIT and the multi-bagger return seems unjustified since the revenue forecast has only increased by 10% over the year. Comparing it with high-growth software companies, PLTR is priced at a ~100% premium.
While we acknowledge the potential of PLTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PLTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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