CEO sells over $31 million worth of stock. Is this tech stock in trouble?

Titan of data analysis Palantir Technologies (NYSE: PLTR) has taken off in 2024, with shares up over 118%. But rest assured – the recent insider sale by CEO Alexander Karp has caused a stir in the City.

So is this technology stock about to get into trouble?

Current sales

According to recent SEC filings, Karp sold a whopping $31 million worth of stock in a three-day selling spree. Before we all panic, let's take a closer look at what's really going on here.

First things first: insider selling doesn't always mean the company is in trouble. Karp might be buying a fancy new yacht or funding his next big idea. But I think it's always worth doing a little detective work in this situation.

Accelerated growth

On the optimistic side, the company's growth story remains red hot. Management recently reported a 27% year-over-year jump in second-quarter revenue, with total revenue reaching $678.1 million. Full-year revenue guidance was even raised to $2.746 billion.

The company also has its fingers in all sorts of AI areas. It recently announced an interesting partnership with Wendy's to inject some artificial intelligence into its supply chain. It's not just about better burgers – this kind of technology could completely revolutionize the way businesses operate.

Analysts are also keen on the company. Wedbush, for example, has a high price target of $38. That's the kind of optimism that would give any investor a boost.

Risks

But here's where things get a little tricky. The company's valuation is rising quite sharply. We're talking a P/E ratio of around 175. That would make even the most optimistic tech bro blush. It's the kind of number that suggests investors expect the company's software to cure cancer, end world hunger and find a way to keep British trains running on time – all before tea time.

And while the company is increasingly committed to commercial clients, it still has a certain penchant for government contracts that may make some investors nervous. These big, lucrative government contracts can be as unpredictable as the British weather, which is not exactly reassuring for weak investors.

And then there's the small matter of dilution. Management is known for doling out stock-based compensation like it's going out of style. While that's great for attracting top talent, it can leave existing shareholders feeling like their piece of the pie is shrinking faster than wool in a hot wash.

Not for the faint of heart

So what's a foolish investor to do? Well, for those who can handle volatility, any dip in stock prices could be an opportunity to grab a piece of the pie at a more attractive price. But for those who prefer investments with a little less drama, it might be best to look for companies with more realistic valuations.

The story continues

Success will depend on whether the company can continue to grow those sales numbers, attract more commercial customers and stay ahead of the curve. Only time will tell whether Karp's stock sale was a smart move or a sign of trouble.

The company's impressive numbers this year are certainly noteworthy, but so is the increasingly crowded AI and data analytics space. For now, I'll be watching from the sidelines.

The post “Is This Tech Stock in Trouble Because Its CEO Is Selling Over $31 Million Worth of Stock?” appeared first on The Motley Fool UK.

Further reading

Gordon Best does not own any of the stocks mentioned. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article about the companies mentioned in this article are those of the author and as such may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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