The billionaire chairman of Palantir just asked to sell a billion dollars in stock. Should investors follow suit?

Stock prices of Palantir Technologies (PLTR 1.95%) they’ve roughly doubled so far in 2024. Coincidentally, co-founder and chairman Peter Thiel recently filed to sell the Palantir stock he owns, which is valued at nearly $1 billion. More specifically, the billionaire entrepreneur (who also helped co-found PayPal) adopted what’s called a Rule 10b5-1 plan to sell nearly 28.6 million Palantir shares by the end of 2025.

Thiel appears to be taking this opportunity to lock in the profits accrued by these stocks. The question for investors is: should they follow suit?

Thiel Plan Rule 10b5-1

Before discussing the investment case for Palantir, let’s look at what Thiel is doing by implementing a 10b5-1 plan. This rule was designed to help company insiders sell stock so they wouldn’t be accused of illegal insider trading. Predetermined sell instructions are given by a company insider and then executed by a brokerage. Some instructions are made public. Insiders can set parameters for when a stock can be sold, so that it’s at a certain price or only on set dates. They can set it up to sell a certain amount of shares or a certain dollar amount.

After the plan is set, there is a cooling off period before any trades are made. Plan changes can only be made during an open trading window and when the insider has no material non-public information that could affect the stock price. Thiel’s sales will be through Rivendell 7, which is one of four investment vehicles he owns that owns Palantir stock.

Thiel set Rule 10b5-1 plans to sell Palantir stock ahead. He adopted a plan in December 2023 to sell 20 million shares, which was disclosed in February 2024. His first trade under this plan was for more than 7 million shares at an average price of $24.79 per March 12. The plan then adopted a trade of nearly 13 million shares at an average price of $21.11 on May 10. This previous plan had an end date of March 2025, but was completed much earlier.

Thiel currently owns approximately 99.5 million shares of Palantir through his investment vehicles Rivendell 7, Rivendell 25, PLTR Holdings and STS Holdings. If the plan goes through, it will reduce its total holdings in Palantir by nearly 29% to 70.9 million shares. As of early 2024, Thiel owned 148.9 million Palantir shares, so he was looking to significantly reduce his stake over the next 16 months or so.

Image source: Getty Images

Should investors follow Thiel and profit?

Palantir was trading at around $6 per share when 2023 began, so the stock (now valued at around $35 per share) has made an incredible run in a relatively short period of time. Given the stock’s strong performance, it’s perhaps no surprise that Thiel is taking some money off the table. For investors with big gains in stocks, it can certainly be prudent portfolio management to follow suit and make some gains.

Palantir has proven to be a great technology company that has helped the government with critical tasks over the years, including fighting terrorism and tracking the spread of COVID-19. Meanwhile, its artificial intelligence (AI) platform is used by companies in industries with various use cases.

However, the company’s valuation seems to be way ahead of itself at present. After its huge run, the stock now trades at a forward price-to-sales (P/S) ratio of more than 27.5 based on analyst estimates for 2024. That’s a huge multiple usually reserved only for companies experiencing high growth, which what palantir is no.

PLTR PS report data (before) by YCharts.

In fact, Palantir’s government business segment has turned out to be a bit dark. Last year, government revenue grew by just 14 percent, which kept overall revenue growth at just 17 percent.

Government revenue growth accelerated, driving Palantir’s overall revenue growth of 27% year-over-year last quarter. That’s solid growth, but still not the hypergrowth Palantir would need to see to justify its current valuation.

Palantir has the makings of a great company, but at some point, valuation matters. Current investors may want to take a cue from the company’s co-founder and lighten their positions, locking in some of the profits.