Key Points
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Strong business momentum has translated into huge share price gains for Palantir.
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While the company has posted impressive valuation gains, its share price isn’t high enough to make a stock split likely in the near term.
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Palantir Technologies (NASDAQ: PLTR) stock has been on an incredible run. While the stock’s gain of roughly 13.5% is roughly in line with the rally for the S&P 500 (SNPINDEX: ^GSPC), the artificial intelligence (AI) software specialist has absolutely crushed the market on a longer timeline.
Over the last five years, Palantir stock has risen roughly 714%. Meanwhile, the S&P 500’s level has climbed 70.5%. With Palantir now trading at roughly $200 per share, is it likely that the company is gearing up for a stock split in the near future?
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Don’t count on a stock split just yet
In recent years, stock splits have become highly anticipated, closely watched market events — and for good reason. The announcements and implementations of splits have coincided with substantial valuation gains for many companies that have implemented them.
A stock split doesn’t alter a business’s fundamentals. It simply cuts the pie that is a company’s share count into a larger number of pieces.
As a result, the stock price is reduced by a corresponding ratio. While this doesn’t improve the underlying business, the lower share price has often made shares more attractive to retail investors. In turn, increased buying action pushes the stock higher. Palantir has yet to conduct a stock split across its roughly six-year history as a publicly traded company.
While I think there’s a good chance additional share price gains will prompt the company to split within the next few years, I don’t think there’s anything to suggest a split is imminent. Trading at roughly $200 per share, Palantir stock isn’t yet at a pure-dollar pricing level that’s likely to spur a split.
If the stock approaches $500 per share and continues to show strength at that level, I think a split becomes much more likely. That’s a level that is historically more likely to encourage stock splits.
So for investors hoping that a near-term stock split will help push Palantir stock higher, I don’t think that’s a solid bet. The good news is that Palantir doesn’t have to rely on a stock split to boost its valuation.
In its second-quarter report published in August, Palantir announced that sales grew 93% year over year to $1.935 billion. Meanwhile, non-GAAP (generally accepted accounting principles) adjusted operating income came in at $1.194 billion — good for a 62% margin.
Palantir is growing sales at an incredible pace and posting margins that are extremely impressive, even by the standards of high-margin software companies. These characteristics could continue to support bullish momentum for the stock.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
