Should You Follow This Insider's Lead and Sell Palantir Stock?

One of the hottest names in artificial intelligence software is data analytics company Palantir Technologies (NYSE: PLTR). Over the last couple of years, it has swiftly evolved from a government contractor working closely with the U.S. military into a more prolific platform reaching major end markets in the private sector.

The company's accelerated top- and bottom-line growth isn't going unnoticed, either. So far in 2024, investors have sent Palantir shares soaring 150% -- versus the near-20% returns posted by both the S&P 500 and Nasdaq Composite.

But in the midst of Palantir's shining moment, the company's chairman, Peter Thiel, just sold a boatload of stock. Below, I'll break down the mechanics of insider sales and provide my opinion on whether or not now is a good time to follow Thiel's move and cash out.

Analyzing insider transactions

When insiders buy or sell stock, it's natural for outsiders to wonder what factors might have influenced the decision. The Securities and Exchange Commission goes to great lengths to establish rules to mitigate any nefarious insider transactions as much as possible. One such protocol is Rule 10b5-1.

Essentially, 10b5-1 allows insiders to create a planned schedule to buy or sell stock based on certain parameters. The point is to automatically trigger buying or selling once predetermined criteria set by the insider are reached. In other words, Rule 10b5-1 helps dissipate the idea that an insider bought or sold securities based on nonpublic information.

This is exactly the situation with Thiel. Between the final week of September and early days of October, the billionaire venture capitalist sold roughly 28.6 million shares of Palantir for total proceeds of about $1.1 billion.

Image source: Getty Images.

Remember to think big picture

Thiel is a co-founder of Palantir and has been with the company since 2003. Even though his latest stock sale is large, this is far from the first time he took profits over the last two decades.

In fact, between March and May, Thiel sold about 20 million shares across four separate transactions -- accumulating a cool $452 million in the process.

Should you sell Palantir stock?

As I've written many times, there is no perfect time to sell a stock. Instead, investors need to ask themselves tough questions around a company's current level of growth and what the trajectory might look like.

PLTR market cap data by YCharts.

Palantir began the year with a market cap of $35 billion. Not even a full 10 months later, it is now valued 2 1/2 times higher. This is a clear sign of outsize valuation expansion.

While I am bullish on the long-term picture, it's hard not to take some profits after such an impressive run during an otherwise short time frame. At the end of the day, taking profits really depends on your personal financial situation.

If you need some liquidity or would feel more comfortable stockpiling cash, now could be an appropriate time to sell some shares. The more important idea here is to keep the long-term thesis in focus. If you're optimistic that better days are ahead for Palantir and you are not in any need of raising funds, then keeping your current allocation is OK, too.

I think the most prudent strategy is a happy medium of trimming your position to recoup your initial investment, while also keeping some exposure to the company.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.