Why Palantir Stock Was Pulling Back Today

After a dramatic bull run in recent weeks, Palantir Technologies (NYSE: PLTR) stock was finally giving up gains, as investors seemed to be taking profits after Friday's pop. That jump was driven by Palantir's announcement that it would be listing as a Nasdaq stock and that it expected to join the Nasdaq-100, which would trigger exchange-traded funds (ETFs) that track that index to buy the high-flying artificial intelligence (AI) stock.

Among those selling the stock was CEO Alex Karp, who filed to sell 4.5 million shares of the stock on Friday, which has a market value of $266 million. That sale was predetermined by a 10b5-1 plan, which sells stock at set intervals to avoid suspicions of insider trading.

Palantir stock was down 5.38% as of 11:45 a.m. ET.

Image source: Getty Images.

Palantir cools off

A pullback in Palantir stock seemed inevitable after it had jumped more than 50% since its earnings report on Nov. 4, lifting its price-to-sales ratio above 50.

Palantir is also one of the best-performing stocks of the year, up more than 250%, and it gained admission to the S&P 500 (SNPINDEX: ^GSPC), helping to fuel those gains. However, even as Palantir has reported accelerating revenue growth and expanding margins this year, most of the stock's growth has come from multiple expansion, which is a reflection of Wall Street's improving view of the business.

Is Palantir overvalued?

Palantir's market cap is now approaching $150 billion, and its price-to-sales ratio is up to 52.8. Based on conventional metrics, the stock does look overvalued.

That doesn't mean Palantir doesn't have a bright future ahead of it, but it will take the business some time to grow into its current valuation. Investors shouldn't expect the stock's surging gains to continue, and an extended pullback at this point wouldn't be a surprise.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.