It can be so hard to convince yourself to take some profits off of your portfolio’s most prominent winners. Indeed, it feels somewhat counterintuitive to trim off the top of one’s top performers.

And while selling some stock after a parabolic or vertical spike may prove a poor decision over the near term (or, in a few cases, the long term) as momentum builds upon itself, driving shares even higher in the weeks and months that follow, I don’t think it’s ever a big mistake to book some (or all) profits to fund a dream purchase, even if it means missing out on more spoils.

Assuming nothing much about the fundamentals or growth story has changed all too much, doing some selling at high — or, in some cases, sky-high — relative valuations strikes me as just being prudent.

In the case of Palantir (NASDAQ:PLTR), which is the new hottest stock on the block for many (some view it as a meme stock of sorts), I think it’s prime time to at least think about booking some gains. Whether you got lucky and bet on the stock despite not understanding what the company actually does or if you spotted deep value in the firm before it even went public, I don’t think there’s any regret to be had by ditching an entire position while using the proceeds to help fund the purchase of your dream home.

Key Points About This Article

• Palantir stock’s explosive rally has made a lot of meme traders a lot of money over the past year.
• Even if it’s a bad time to sell out, you can’t knock yourself for taking profits when a stock’s valuation rises to levels that make you uncomfortable.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Move over Nvidia. Palantir stock is the new red-hot stock in town.

Sure, you may feel distraught if PLTR continues doubling up on itself many times over, but, at the very least, you won’t have to deal with the pain of seeing your big gains evaporate in one swift sell-off. While Palantir could have more long-term room to run as it grabs the AI bull by the horns, the valuation, I believe, has swelled to levels that imply incredibly high expectations come the firm’s future earnings reports. When expectations are so high, even an excellent quarterly showing can cause pressure on the share price.

In the case of PLTR, there’s just way too much euphoria priced in. The stock popped on its inclusion into the S&P 500, and it rallied again after news broke that shares are headed to the Nasdaq exchange from the NYSE. Indeed, these kinds of events are meaningful, but do they warrant such a sudden surge in the share price?

I’d argue not, especially since PLTR stock has been running hot over the past two years, surging more than 775% over the timespan. Though not every single parabolic move is followed by a devastating implosion, I wouldn’t be all too surprised if the big rally ends in a brutal correction of sorts.

Painful corrections happen. And they’re hard to time.

The stock shed more than 80% of its value between its 2021 peak and its late 2022 trough. Now, nobody knows if another descent will be in the cards. If the company keeps serving up good quarters and strength in the AI Platform (AIP), there’s some runway to the upside. Heck, perhaps even $100 per share could be in the cards.

That said, if you struggle to value the company and its nearly 315 times trailing price-to-earnings (P/E) ratio, you’re not alone. And it may be a sign that it’s time to at least ponder taking enough profits so that you’re playing with the house’s money. That way, you won’t feel all too bad about missing a continuation of a rally as you put a portion of the gains to work on a purchase you’ve been meaning to make.

In short, only time will tell if selling out of PLTR shares here proves ill-timed. That said, if you made a big profit, taking a gain is the prudent thing to do, regardless of what the future holds.

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