I chose to offload all my shares in Palantir.
I chose to offload all my shares in Palantir.
Palantir (PLTR 8.54%) was one of my preferred investments when I scooped up shares during the 2022 market downturn. Its talent for using AI and machine learning to provide insights set it apart from other SaaS stocks.
This distinction grew even stronger with the introduction of its Artificial Intelligence Platform (AIP). This tool delivered unprecedented productivity boosts for its clients, revolutionizing their operations.
Yet, despite its advantages, I chose to offload my entire Palantir portfolio just before the Nov. 4 earnings announcement. This move might confuse many growth investors given that the stock soared post-earnings release for the third quarter of 2024. Nevertheless, it's essential to consider if I stand by this decision long-term.
Why I let go
Making this call wasn't easy. My most costly investing lesson involved the sale of Booking Holdings (NASDAQ: BKNG) during the dot-com bust, after I made a swift profit. While it seemed like the right move for several years, it's since quadrupled from where I sold it. By not holding (or even re-purchasing shares), I missed out on an opportunity for an enormous gain.
In light of this, I must ask myself if I made the same error with Palantir. I acquired the stock at an average price of $9 per share, translating to a profit of roughly 370% as I sold at $42 per share.
The primary factor pushing me to sell was valuation. When I sold, the forward P/E ratio was an eye-watering 115, and the price-to-sales (P/S) ratio was a staggering 40, demonstrating an incredibly expensive stock by almost any measure. Although both ratios rose after that point, the valuation left me questioning if Palantir shares still held substantial upside in the near term.
Even with sufficient growth, I could have overlooked the high multiples, especially considering the results reported in AIP boot camps. Palantir claimed that a convenience store chain managed to transition from prototype to paid pilot in 25 days, improving its inventory management and price optimization after the pilot in the second quarter of 2024.
Another attendee reported achieving more in a single day with AIP than a hyperscaler accomplished in four months. These monumental productivity gains should contribute to Palantir's revenue. However, I felt that the growth attributable to Palantir did not fully justify its sky-high stock price.
In the first three quarters of 2024, revenue swelled by 26% to surpass $2 billion. Furthermore, the gradual growth in operating expenses enabled net income to leap to $383 million in the first nine months of 2024, a substantial increase from $116 million in the same period in 2023.
Admittedly, the release of this data led to a surge in the stock price, which might suggest I made the wrong call.
Nevertheless, despite the promised potential of AIP, Palantir appears set for a growth deceleration. In 2025, analysts anticipate revenue will increase by just 21%, significantly lower than Palantir's projected growth rate of 26% for 2024. Such growth figures are promising for Palantir stock, but they were not enough for me to justify the company's valuation.
Will I buy Palantir again someday?
Recalling my Booking Holdings misstep, I will keep Palantir on my radar, and I must admit, I still maintain a bullish sentiment regarding the stock in the long term. However, it's essential to recognize that I cannot time the market, and the sale could turn out to be a mistake.
Nonetheless, even the most successful stocks within the last 50 years, such as Nvidia and Amazon, experienced declines of more than 50% at certain moments in their histories - a risk that could validate my decision to cash in my gains.
Additionally, investors should remember that Palantir has already endured a decline of over 85% in its brief history. While I don't think it will return to its late 2022 price, its valuation increases the likelihood of a substantial pullback in Palantir stock.
In conclusion, the Booking Holdings lesson remains etched in my mind, so if Palantir's earnings and sales multiples become more affordable, I might revisit my investment. But with more potential downside than upside in the short term, I'm content to spectate for now.
Despite the impressive growth in Palantir's revenue and net income, I found the company's valuation to be excessively high, justifying my decision to sell. Given my past experience with overvalued stocks, I'm cautious about re-investing in Palantir until its financial metrics become more reasonable. I'm maintaining a watchful eye and remain bullish about Palantir's long-term potential, but for now, I'm content to observe the stock's movement without investing additional money. Investing wisely involves considering both gains and the potential for loss, and I believe the risks associated with re-entering Palantir's market are currently too high for my comfort.