What happened

Shares of Palantir Technologies (NYSE:PLTR) on Wednesday continued their strong recent run higher, gaining 10% in afternoon trading despite no company-specific news. On Thursday, the company is expected to release its first quarterly earnings report since going public, and all eyes will be on Palantir to see if it can live up to investor expectations.

PLTR Chart

Palantir data by YCharts

So what

Palantir, a software and data company co-founded by Peter Theil, went public in late September, but the shares only started accelerating higher in recent days. The company's tech is highly regarded, but there was some talk prior to its public debut that its history of accepting controversial government contracts might work against it.

But Palantir's software is perceived to be more affordable than the offerings of some of the defense contractors that also provide government IT services, which investors believe could give the company a leg up if the Biden administration looks for ways to cut government spending.

Illustration of a secure cloud.

Image source: Getty Images.

The rapid appreciation has also attracted skepticism. Market analytics company HedgeEye late last week added Palantir to its "best ideas to short" list, saying it sees more than 50% downside potential in Palantir shares over the next six to 12 months due to its lack of enterprise customers even after 17 years in business.

Now what

Time will tell whether the bulls or the bears have it right concerning Palantir, but investors thinking about buying in should be warned the stock looks quite pricey. In its registration statement before going public, Palantir said it hopes to generate $1 billion in sales in 2020. At current prices, the stock now trades at 25 times that expected sales number.

For comparison, those government services companies that Palantir is competing for business against typically trade at two to three times sales, and even most commercial-focused cloud and data companies are trading at multiples well below where the market is valuing Palantir.

That's not to say the company can't grow into that valuation over time. But no one is getting a bargain buying into Palantir today.

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.