What happened

Palantir Technologies (NYSE:PLTR) shares have been on a wild ride of late, up 50% for the week and 170% for the month. The software and data tech company got off to a hot start Friday morning, gaining as much as 15%, but then plunged after a prominent short-seller issued a warning about the stock.

So what

Palantir, a software and data company co-founded by Peter Thiel, went public in late September and really started to jump higher in late October. The shares are now up more than 200% since its debut, with investors optimistic that Palantir's sophisticated data analysis tools will continue to gain traction with government and commercial customers.

Illustration of a person unlocking a cloud network

Image source: Getty Images.

That sort of meteoric rise tends to attract the attention of short-sellers; and sure enough, Citron Research on Friday tweeted out a message calling the shares "no longer a stock but a full casino" and saying it "does not take a ball of crystal to know this will fall back to Arda." (Arda is the name of the Earth in The Lord of the Rings, the novel that also is the source of Palantir's name.)

Palantir's shares reacted by reversing a strong open and trading down as much as 10% for the day before recovering somewhat to close down 4.8%. Citron said it was initiating a short with a target price of $20 per share, well below the stock's $27.66 Friday closing price.

Now what

Investors shouldn't have needed a short-seller to tell them that Palantir the stock was getting ahead of Palantir the company. The recent run-up in the shares has the market valuing Palantir at more than $50 billion, or 50 times the company's expected 2020 revenue.

Given that Palantir is reliant on the government for a significant portion of its sales and that other publicly traded government services companies trade at multiples below three times sales, Palantir's run is going to lead to some skepticism.

Bulls can argue that Palantir's superior tech will help it appeal to commercial customers over time and should allow for a higher multiple. That could be correct. But Palantir is also the target of criticism over its government work, which could limit interest in the stock.

There's definite value in this company, and I'd note that even at Citron's target exit price the stock would still carry a lofty multiple. But for all the fabulous tech Palantir has, the company has not yet figured out how to defy the laws of gravity, and given the recent surge higher, some sort of a pullback should come as no surprise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.