Stock Analysis

Is It Too Late To Consider Buying Splunk Inc. (NASDAQ:SPLK)?

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NasdaqGS:SPLK
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Today we're going to take a look at the well-established Splunk Inc. (NASDAQ:SPLK). The company's stock led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Splunk’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Splunk

What's the opportunity in Splunk?

Great news for investors – Splunk is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is $246.06, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, Splunk’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Splunk generate?

earnings-and-revenue-growth
NasdaqGS:SPLK Earnings and Revenue Growth August 30th 2021

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Splunk, it is expected to deliver a negative earnings growth of -6.1%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although SPLK is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to SPLK, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on SPLK for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Splunk and we think they deserve your attention.

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What are the risks and opportunities for Splunk?

Splunk Inc., together with its subsidiaries, provides software and cloud solutions that deliver and operationalize insights from the data generated by digital systems in the United States and internationally.

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Rewards

  • Trading at 43.2% below our estimate of its fair value

  • Earnings are forecast to grow 31.56% per year

Risks

  • Negative shareholders equity

  • Shareholders have been diluted in the past year

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