Is Now An Opportune Moment To Examine Splunk Inc. (NASDAQ:SPLK)?

Splunk Inc. (NASDAQ:SPLK) received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. 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. But what if there is still an opportunity to buy? Let’s examine Splunk’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Splunk

Is Splunk Still Cheap?

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 $159.57, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Although, there may be another chance to buy again in the future. This is because Splunk’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Splunk?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a negative profit growth of -9.3% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Splunk. This certainty tips the risk-return scale towards higher risk.

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 tabs on SPLK for some time, but hesitant on making the leap, I recommend you research further 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 while earnings quality is important, it's equally important to consider the risks facing Splunk at this point in time. In terms of investment risks, we've identified 2 warning signs with Splunk, and understanding these should be part of your investment process.

If you are no longer interested in Splunk, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.