It’s a name you may not be familiar with, but Palantir Technologies (NYSE:PLTR) has been around the proverbial block working in the shadows. Now a new publicly-traded company, it may prove wise to turn a blind eye to any alluring promises and bullish whispers made in PLTR stock’s direction. Let me explain.
Direct listing? Think Spotify Technology (NYSE:SPOT) or Slack (NYSE:WORK). Cool! Big data? That’s an even bigger trend! Famed investor Peter Thiel is a backer? Awesome! Hints of spycraft dealings? Heck yes! Insider trading? Yeah, baby! Superficially, new-to-the market Palantir sounds like the kind of investment bound to provide big returns for its shareholders while having colleagues huddled around the cooler (in a post-Covid-19 world of course), green with envy over your PLTR holdings.
But PLTR stock isn’t all its cracked up to be. Lurking just below the surface, Palantir is risky business for investors buying shares with an eye on the next big, big thing. So, who or what is Palantir, depending on if you believe in an IRS code which treats corporations as breathing entities?
In a nutshell, Palantir is widely known, well to those in government intelligence and counterterrorism communities, as a big data facilitator. Palantir’s tools allows users to identify patterns hidden deep within cloak and dagger data sets and execute real-world responses to identified targets or threats. Yup, it sounds as though James Bond has a new critical asset at his disposal. And while PLTR stock is new to the secondary market, Palantir Technologies has been doing this sort of thing since 2003.
But the buck, quite literally stops right there for today’s investors. PLTR isn’t a ground floor opportunity to buy the next Microsoft (NASDAQ:MSFT) or Apple (NASDAQ:AAPL). Aside from being a technology stock and getting past how a direct listing is supposed to benefit shareholders, the bigger story is why have insiders been so aggressive selling shares?
Selling pressure in the private market took Palantir down towards an all-time low $4 as recently as August in front of the company’s planned NYSE debut. It begs the question, what exactly was the hurry? That wasn’t the last of the determined action by insiders, either.
In the aftermath of all those ‘virtual’ smiles and clapping for the cameras on the NYSE as shares survived their first day of trading, insiders have continued to unload inventory. And the sales have been the kind which go well beyond putting on a new addition for the beach house or paying for the twins four year tuition at Columbia University.
The highest honors for unusually heavy insider selling goes to none other than Palantir’s CEO Alex Karp, who sold off a whopping 11.5 million PLTR shares at an average price of $9.70 in the open market. The company’s President and Secretary Stephen Cowen sold 2 million of his shares. And both the CFO and COO sold 1.6 million and 1.4 million shares, respectively. While those actions fail to inspire confidence of an altruistic offering for today’s investors, another flag has been raised too.
As InvestorPlace’s Mark Hake thoughtfully notes, PLTR’s negative free cash flow is a problem. Worse, it looks like a situation with little incentive to improve in the future. As Mark explains it, ‘doing better’ in the real world could raise unneeded attention. Given Palantir’s government clients, that might be a conflict of interest. What’s more, already Palantir is telling Wall Street it should focus on what it calls contribution margin as a better measure of taking the company’s pulse.
If it sounds like accounting shenanigans or some type of sleight of hand, you’re not alone. And with Mark’s financial credentials and firsthand work deep within the Beltway community, I’m appreciatively staying out of harm’s way and keeping PLTR stock on ice.
PLTR Stock Daily Price Chart
Source: Charts by TradingView
The story of the price action since PLTR entered public life on Sept. 30 has the daily chart looking mostly undecided with possibly a bearish lean to it. If for no other reason, shares are now several percent beneath Palantir’s direct offering of $10. Technically, with just over three weeks of information to gain insight from, it’s early as far as the development of more meaningful basing patterns for bulls and bears alike to get excited over.
For now and as already determined prior, I’d avoid PLTR stock. At a minimum, five to seven weeks is fairly typical of what’s needed to form a bullish cup, triangle consolidations and other familiar chart formations. But given the insider selling, I wouldn’t hesitate to wait until the company’s financial results for 2020 are released and allow an expiring lockup period a bit of breathing room before a purchase is considered. You may wind up missing out on a little something for the extra confirmation.
But if Palantir somehow rises to the challenge of being the next Microsoft stock, the more thoughtful and deliberate purchase won’t find any pity from your co-workers when cooler talk becomes a socially acceptable thing again.
On the date of publication, Chris Tyler does not hold, directly or indirectly, any positions in securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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