Palantir Technologies, a Peter Thiel-backed data analytics company best known for working with government spy agencies, is preparing to trade on public markets for the first time on or around Sep. 23.

Palantir, though secretive, has attracted a lot of buzz through the years. And Thiel has a strong reputation as a co-founder of PayPal and an early investor in both Facebook and Microsoft's LinkedIn. Those investments have paid off handsomely for shareholders.

Should investors buy Palantir? Here's what you need to know before you do.

Graphic of workers looking at a secure cloud setup.

Image source: Getty Images.

This won't be a normal IPO

Palantir will not launch a traditional initial public offering, instead planning a direct listing on the New York Stock Exchange. While an IPO typically involves the sale of a block of shares via underwriters, in a direct listing, existing holders including founders, venture firms, and vested employees sell shares on the exchange.

Direct listings are a lot simpler than IPOs and involve fewer restrictions, but they can also be riskier. They are missing the underwriting banks that connect companies with big-money institutional interest, come up with a price range for the shares, and backstop the offering in the event of a lack of interest.

Direct listings are typically used by companies with no significant need for capital, and who already have a well-established name or reputation in the market. In recent years only two other tech companies, Spotify Technology and Slack Technologies, have used direct listings to go public. Spotify is up 77% since it first started trading, while Slack is down 33%.

The current market is much more volatile than when Spotify and Slack started trading, and Palantir arguably does not have the household name recognition those companies enjoyed. Palantir has brought in Citadel Securities, the bank that worked with Spotify and Slack, to guide it through the process.

We don't really know what the company is worth...

When Palantir raised $880 million in 2015, it sold shares at a price that valued the business at an impressive $20.3 billion. Five years later, it is far from clear what the company is worth.

In its registration statement, Palantir said it has about 2.17 billion shares outstanding, including unvested options and restricted stock. It also details the prices those shares are trading at on private markets. More than 35 million shares traded in the current quarter through Sep. 1, at an average transaction price of $6.45 per share.

That implies a total equity value of about $14 billion.

Private market prices are notoriously unreliable, and averages can be deceiving. In the current quarter, the shares have traded for as little as $4.17 apiece, and as much as $11.50. That would put Palantir's equity value at anywhere from about $9 billion to $25 billion. The average price on Sep. 1, the last day of private trading, was $9.17, getting the company within range of that $20 billion number.

...or even what to compare it to

Part of the bull case for Palantir is built around Wall Street's willingness to pay up for data analytics companies. Last year, Salesforce.com paid more than 10 times sales to acquire Tableau Software, and Splunk trades at more than 13 times sales.

Snowflake, a data warehousing company, debuted on Sep. 16 at $245 per share, well above its $120 IPO price, implying there is a strong investor appetite for data companies.

But Palantir does not lump itself in with Silicon Valley data tech. In a letter accompanying the registration statement, company co-founder and CEO Alexander C. Karp said tech engineers are good at building software but "do not know more about how society should be organized or what justice requires."

Aerial view of the Pentagon.

Image source: Getty Images.

Karp seems to consider the company a defense specialist.

"Our software is used to target terrorists and to keep soldiers safe," Karp wrote. "If we are going to ask someone to put themselves in harm's way, we believe that we have a duty to give them what they need to do their job."

But based on that comparison, Palantir arguably is worth a lot less. Booz Allen Hamilton (NYSE:BAH) and ManTech International (NASDAQ:MANT), two defense IT companies with substantial intelligence businesses, are valued by the market at about 1.5 and 1.2 times sales, respectively. And Palantir has been a lightning rod for criticism based on some of its government contracts, which might have an impact on demand for shares.

Palantir is hoping to hit $1 billion in revenue in 2020, meaning it would need to trade at 10 times sales just to hit the lower end of the valuations mentioned above.

Wait on this one

I'm not one to rush in to buy IPOs in most circumstances, and Palantir  is no exception. The company's had success in government circles and has great potential, but given the nature of the offering, the overall volatility of the markets, and uncertainty about valuation, I wouldn't be surprised to see this stock have a choppy first few months.

There's strong and increasing government demand for data analytics, and defense IT should hold up even if there are budget battles in the years to come. But potential investors should be warned that intelligence business by its nature is shrouded in secrecy, and this will likely be a company without much clarity for the foreseeable future.

For now, at least, I'll be watching this one from the sidelines.