A growing number of investors are shorting the stock of data analytics firm Palantir (PLTR), which is a bet that the share price will decline.
According to short-selling research firm S3 Partners, 98 million shares of Palantir are sold short currently. That’s up 81% from the start of September, and the largest increase in a short position among stocks traded on the benchmark S&P 500 index.
The rise in Palantir’s short position comes after the stock has risen 147% this year, dwarfing the 24% gain in the technology-laden Nasdaq Composite Index (QQQ). PLTR stock is now trading at 122 times future earnings estimates, which is sky-high and well above the average price-earnings (P/E) ratio of 41 times earnings among stocks traded on the Nasdaq.
Short Interest Double That of the S&P 500
Stocks that have enjoyed big rallies and have a high valuation often attract short sellers who believe the good times cannot last and that a decline in the share price is inevitable. The amount of stock sold short versus the total amount available for trading, or the “short interest,” is a little less than 3% for stocks traded on the S&P 500 (SPY). The ratio for Palantir is currently double that amount at 6%.
A high short interest in a stock can serve as a warning to investors, signaling that a stock might have gotten overheated and run too far, too fast. PLTR stock has risen steadily throughout the year on strong financial results, inclusion in the S&P 500 index, and news of lucrative new contract wins.
However, in recent weeks, there have been reports that company co-founder and current chair Peter Thiel is selling up to $1 billion of Palantir stock amidst the current rally, which could serve as another warning to investors.
Is PLTR Stock a Buy?
Palantir stock has a consensus Hold rating among 16 Wall Street analysts. That rating is based on four Buy, six Hold, and six Sell recommendations assigned in the last three months. The average PLTR price target of $27.67 implies 34.79% downside risk from current levels.
