Controversial data analytics company Palantir (NYSE:PLTR) reports Q2 earnings results on Thursday. That has investors watching closely to determine whether PLTR stock belongs in their portfolios.

Palantir was a polarizing name long before the company’s initial public offering (IPO) last September. PLTR stock has been a polarizing story ever since.

Most investors can agree that the market for data analytics is hot. And Palantir’s technology offers plenty of cool Batman analogies for the comics crowd. But when it comes to valuation, Palantir stock is less Bruce Wayne and more a Joker-type situation.

Since I recommended investors sell Palantir stock on June 14 as part of my “What to Buy, What to Sell” series, PLTR shares have declined 8%. That’s modestly below the S&P 500, which declined 4% over the same period (+20% year-to-date, while PLTR is down -2.7% YTD).

Pair Trade: Big Data

I’m in the camp that’s hot on the company but cold on the valuation. As a result, I’ve been looking for a pullback in PLTR stock before getting more constructive.

Since revisiting the stock in mid-July, shares have essentially traded sideways at around $23 per share (well below their $39 peak from January). Momentum has stalled.

At 30x forward sales, the bar is clearly set high. But is it too high?

That depends. On one hand, investors would be hard-pressed to name another company that can achieve revenue growth of 30%+ every year for the next 5 years and sustain a 20%+ operating margin.

On the other, maintaining that kind of hockey stick growth won’t be easy. Palantir will need to demonstrate a steeper ramp in its growing enterprise business. And while Big Brother-type surveillance may be the gold standard for government agencies guarding national security, it’s often a sore nerve for the commercial sector.

Critics view the company’s technology as a dangerous invasion of consumer privacy. Plus, PLTR is a high-multiple stock subject to macro risk. Simply put, high multiples and rising interest rates don’t mix.

PLTR is a complicated story, equal parts Batman, Joker and Two-Face. Not surprisingly, retail investors are likewise divided. r/WallStreetBets summed it up best:

PLTR YOLO, 🚀 or 💩?

So, Alex Karp, CEO of Palantir, “InvestorPlace Nation” has some questions for you. We hope you’ll address these questions from our readers on Thursday’s call.

PLTR Stock: A Study in Contrasts

First, the good news. As I said back in mid-July, investors have plenty to like when it comes to Palantir’s long-term addressable market. The company’s Gotham software is well-beloved by government entities working in law enforcement and intelligence. PLTR stock is also a shoe-in to benefit from the Biden administration’s increased focus on cybersecurity.

Frequent InvestorPlace readers might be familiar with my two biggest concerns about PLTR stock. First, PLTR stock trades at 30x forward sales — essentially in line with revenue growth. While there are several potential upside catalysts, the stock looks fairly valued here.

Second, I think there’s meaningful downside risk given the company’s already aggressive 30% revenue growth projections. Without a meaningful acceleration in the enterprise business, it will be difficult for Palantir to sustain this level of growth.

My concerns are pretty much the same as they were in mid-July. For a refresher, here’s my quick take on PLTR stock:

PLTR Investment Thesis

Pros:

• Red hot sector with sustainable 30%+ revenue growth; and
• Recent pullback in the stock price.

Cons:

• Potential for a wider sector correction; and
• Lack of visibility on enterprise strategy to validate long-term growth forecast.

My call ahead of earnings? Stay on the sidelines and look for a better entry point. Now let’s dive into reader questions.

Enterprise Strategy

Despite showing strong healthy growth in its government business, Palantir’s enterprise business (39% of Q1 sales) has largely underperformed expectations.

Data privacy is a major concern for the enterprise market, and Palantir’s Foundry solution appears well-suited to address those needs. But despite that apparent demand, Palantir has yet to achieve meaningful sustainable growth in that segment.

On a more positive note, Palantir has been investing in the healthcare side of its business to accelerate growth. The company has made several big hires and announced marquee customers like The Food and Drug Administration, Centers for Disease Control and Prevention and National Institutes of Health.

Reader Question: Data collection is becoming a major security issue and the market is concerned that enterprises won’t want to share sensitive data with firms like Palantir. What steps is the company taking to alleviate security and privacy concerns for enterprise clients?

Government Strategy

Back in June, PLTR announced that the company had won a contract with the Federal Aviation Admiration (FAA) to provide a data analytics tool that promotes aviation safety.

Reader Question: Now that flight volumes are increasing, could the FAA expand the scope of its contract with Palantir?

Covid-19 Impact

In June, the U.S. Centers for Disease Control and Prevention (CDC) awarded Palantir a $7.4 million contract renewal for “an outbreak response and disease surveillance solution.” On July 26, the Department of Health and Human Services renewed and expanded its one-year contract for Palantir’s COVID-19 vaccine distribution platform Tiberius from nearly $17 million to $31 million.

Reader Question: With the Delta variant now complicating vaccine rollout and infection-containment protocols, is there room for further upside from Palantir’s CDC and HSS contracts?

Growth Projections

LTR’s revenue guidance calls for consolidated revenue growth of 30% or more for 2021 through 2025.

Reader Question: What kind of enterprise growth assumptions are baked into PLTR’s revenue projections?

Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.

Disclosure: On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.

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