Is $Palantir worth it?

$Palantir (PLTR.US)$ has quite an interesting story. This company is often regarded as the most secretive startup in Silicon Valley. The firm started building cutting-edge software platforms for the CIA and FBI. Furthermore, the CIA and Pentagon deployed Palantir's platform in Afghanistan and Iraq. It also allegedly helped to track and locate Osama Bin Laden.

Sounds kind of cool. For retail investors, Palantir is a company investors have found a reason to jump on. This year, PLTR stock surged during the previous meme stock rally to hit $45 per share. However, like many meme stocks, Palantir has since fallen back to earth.

For many retail investors, this discount may seem intriguing. Personally, I remain neutral on PLTR stock right now. (See Analysts' Top Stocks on TipRanks)

Let's dive into the bull and bear case around this stock.

Impressive Growth Not Enough for the Market

One of the key bull theses driving interest in Palantir is the company's growth prospects moving forward. This software and analytics company has a business model at the intersection of growth and stability that many long-term investors like.

Palantir focuses on providing high-value customers (we'll discuss that more in a second) with meaningful insights via software analytics tools based on big data and AI. Thus, Palantir's success in generating market-beating revenue growth could signal that a strong, long-term cash flow machine is right around the corner.

Now, Palantir has not been consistently profitable, ever. This is a company that's continued investing heavily in its platform at the expense of profit. However, recent earnings suggest the tide may be turning on this front as well.

This past quarter, Palantir brought in $0.04 per share in earnings, meeting analyst expectations. It's earning a profit – a good sign for long-term investors looking at this stock.

However, on the top line, Palantir beat expectations, bringing in $392 million versus an estimated $385 million. That translates to 36% year-over-year growth. Certainly, not bad, particularly for a company of this size.

That said, PLTR stock sold off dramatically following this earnings report. It should be noted that investors had bid up shares prior to the report. Accordingly, it appears the market was pricing in some sort of massive beat this past quarter, which didn't materialize.

This sort of volatile price action has made Palantir a stock that's hard to intrinsically value. On the one hand, market sentiment shifts continue to provide volatile swings to the upside and the downside. With momentum driving shares all over the map, PLTR stock looks more like a trading vehicle right now than a long-term hold.

For those taking the longer view with PLTR stock, perhaps this volatility doesn't matter in the grand scheme of things. However, for those looking to hold this stock for a limited period of time, continued volatility will be something to watch with Palantir in the quarters to come.

Revenue Mix a Key Driver of Interest in Palantir

Another one of the key factors investors seem to like with Palantir is the company's client mix. Unlike many large corporations, which ultimately sell their goods to consumers or other large businesses, Palantir's focus has been on growing its revenue from government agencies.

As of the second quarter of this year, the

Revenue mix as of Q2

Having the U.S. government as the company's core client is generally seen as a good thing. The government will pay its bills and has unlimited resources to do so. However, one misstep and this whole game could be over should the government switch its software analytics provider.

It should be noted that this relationship between Palantir and the government appears to be pretty entrenched. Switching costs are likely very high at this point, and there seems to be a relatively wide moat around Palantir's core customer base. For bulls, this is a good thing.

Overall, Palantir's inability to provide profitable growth over many years has some investors worried about its pricing power with its core customer. Growth is great, but doing so profitably is important. Thus, the extent to which new contracts can be negotiated at better rates remains a key factor investors should keep an eye on.

Turning to Wall Street, Palantir has a Moderate Sell consensus rating, based on one Buy, three Holds, and four Sells assigned in the past three months. The average Palantir price target of $23.14 implies 11.5% upside potential.

Analyst price targets range from a high of $31 per share to a low of $18 per share.

The hopes for Palantir are high as a "best in breed" player in the field of data analytics, data mining, and security services. With the U.S. government as Palantir's biggest client, what could go wrong? This is a company that continues to grow its top line quickly, providing bulls with a strong investment thesis today.

However, bears seem to be vindicated in their view that this company's earnings potential remains muted. On a forward-looking price-to-earnings valuation basis, this stock is expensive. Accordingly, Palantir has work to do on its bottom line before many fundamental investors jump aboard.