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I used to be a big fan of Palantir (NASDAQ:PLTR) but I’ve gone right off the stock in the last week. And the reason is straightforward – I saw an interview with the CEO.
It emerged last week that Michael Burry had a short position in Palantir at the end of Q3. I couldn’t care less, but seeing the CEO’s reaction gave me a strong signal to stay away.
Triggered
In a CNBC interview, Alex Karp was asked about what he thought of Burry’s position. I didn’t expect him to think it was a good idea, but I wasn’t anticipating what followed:
“It just is super triggering because these people – they could pick on any company in the world [but] they have to pick on the one that actually helps people, that actually has made money for the average person, that is actually supporting our war fighters. Why do they have to go after us?”
He then went on – in so many words – to speculate that what was going on constituted market manipulation:
“With the shorts it’s very complex – it’s not even clear that, honestly, what I think is going on here is market manipulation.”
None of this is what I want to see from the CEO of a company I’m considering investing in. And this is why I’ve gone right off Palantir as a stock.
Short selling
I don’t know exactly why Burry is short Palantir. But his position isn’t an attack on the company – it just means he thinks the stock is likely to fall.
So what? At some point or other virtually every stock has been overpriced and fallen and that’s created short opportunities.
Furthermore, the idea that Palantir’s current share price is hard to justify is hardly outrageous. The stock trades at the highest price-to-sales (P/S) multiple in the S&P 500.
Karp calling it market manipulation because someone expressed that view in the options market, though, alarms me. In fact, it makes me more convinced it might be true.
Valuation
Palantir may well have the best growth prospects of any S&P 500 company. Its product is incredible, the market is enormous, and there doesn’t seem to be a competitor in sight.
As a result, I think it probably does deserve to trade at a higher P/S ratio than any other stock in the index. But even after falling 13% in a week, it still trades at a multiple of 109.
The next most expensive stock in the S&P 500 by this metric is AppLovin at a P/S ratio of 38. So even if Palantir’s share price fell 50%, it would still trade at the highest multiple.
Maybe it’s worth that, or maybe it isn’t. But knowing the CEO gets triggered by finding out that someone is shorting the stock at these levels puts me right off.
FOMO?
Michael Burry is a braver man than me to bet against Palantir. We’ll see how his short position goes, but one thing we know right now is that the stock is down from where it ended Q3.
From a long-term perspective, I’m steering clear of this one. That might prove to be a mistake, but a stock market full of other opportunities means I don’t need to worry about FOMO.
