There are some companies that are very difficult to analyze based on traditional financial metrics. I believe Palantir Technologies (NYSE:PLTR) stock is one of them.
While PLTR stock generated significant interest over the trailing six months, the underlying firm doesn’t generate profits. Instead, the company’s ties with government agencies (particularly the intelligence community) keep the brand viable.
Therefore, it seems to me that PLTR stock has two major headwinds. First, Palantir isn’t appealing in the current investing environment that caters toward environmental, social and governance (ESG) concerns.
On the surface, this poses a challenge because millennials are the largest generation in the U.S. workforce. Also, they care deeply about social issues, which is an especially glaring problem for Palantir.
According to The Intercept, Palantir provided the engine for the Trump administration’s deportation protocol. Not only that, the system which the company developed allowed U.S. Immigration and Customs “agents to access a vast ‘ecosystem’ of data to facilitate immigration officials in both discovering targets and then creating and administering cases against them.”
Call me crazy but that doesn’t sound like something most millennials would be down for. Considering that many millennials have entered their peak earning years, this presents longer-term questions for PLTR stock.
However, money talks. During the past few months, we’ve seen the phenomenon of investors on social media coordinating to support companies that short-sellers have targeted. Usually, these investing do-gooders suggest that short traders do nothing but ruin people’s lives with their negative trades.
In the same breath, many of these folks also buy cryptocurrencies. The reason? Decentralized protocols democratize financial participation for the world, not just the privileged elite. These don’t seem the core beliefs that will have them also buying PLTR stock.
So, centralization is bad, but the Central Intelligence Agency is good? It doesn’t make sense, which leads me to the second headwind: is Palantir’s product any good?
Is PLTR Stock a Truly Substantive Investment?
It’s cynical but some of the most controversial investments often generate the biggest returns. For instance, until vaping came along, tobacco firms could depend on a highly addicted user base. More recently, gun stocks have performed very well due to fears of social chaos.
Thus, it makes sense — again on a terribly cynical basis — that many investors will buy PLTR stock on issues such as undocumented immigration. Whether it’s for the Trump administration or the current Biden administration, our nation can’t survive without an orderly immigration process. Further, we must maintain the rule of law. Palantir can help by doing a job that no one wants to really talk about.
But the question then becomes, just how effective is Palantir’s big data analytics? You see, it’s difficult to baseline statistics such as deportation. Obviously, a huge political element exists that could either support or stymie such action.
Interestingly, The New York Times Magazine provided some fascinating insights into this topic. While many analysts tout Palantir’s successes — it has connections with institutions like the CIA — it’s not without its criticisms. For example, Home Depot (NYSE:HD), Hershey (NYSE:HSY) and American Express (NYSE:AXP) “all dropped Palantir after using it. Even within the intelligence community, there seem to be mixed opinions.”
NYT Magazine later notes that several former CIA analysts felt Palantir’s products “underwhelmed.” The article pointed out that the CIA is a big place and other agents extolled the offerings. Nevertheless, for all the hype built into PLTR stock, you’d expect the underlying firm to carry more universal respect.
In context, though, the kicker is the insider selling. Going back to October 2020, the main executives — including CEO Alexander Karp — have been cashing in on PLTR stock.
Which, you know, is capitalism. But if Palantir and its products are so great, why isn’t anyone on the inside buying PLTR?
Do as They Do, Not as They Say
Before you send me an angry email, please note that I can’t tell you what motivates Palantir executives to sell PLTR stock. Maybe they want to buy an exotic sports car for their fourth mansion in the Hamptons. Or they’re looking to remodel their helicopter. I don’t know.
Forgive me but it just seems strange. A lot of bulls use the phrase “grow into its valuation” to describe aspirational investments that lack profits but are rich in potential. I think you’ll agree that PLTR stock fits into this category.
But if so, the insider dumping is even more worrisome. That’s because as a public retail investor of PLTR stock, you’re not being pitched on its profits (it doesn’t have any). Rather, you’re being pitched on its aspirations; it will grow into its valuation.
When insiders sell you the aspiration but they themselves take the cash, what does that tell you? I think this is an opportunity to do as they do, not as they say.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.