SPLK....Great Company.....Stock May Be Ahead of it's Ski's
Yellow caution sign. Fact SPLK stock is up by an impressive 6+% today on a 51% Year over Year rise in sales this. Let’s do a deeper dive….how did that growth set up for future profitability? Year over Year Gross Margins were down 200 basis points, OPEX grew just under 60%, including a worrisome 65.2% rise in G&A,YOY total operating loss increased to $ 6.2 million from $ 1.3 million. The bottom line is that revenue is projected to increase, but does not scale readily into future profitability.
Stock technical’s are pointing to frothiness, the RSI and Stochastics are telegraphing an over bought condition. Additionally SPLK has a very high price to sales ratio of 20.14, signaling excessive valuation. The company also has a very high 16.3% short percentage of float, 10% is considered by many to be the threshold for a potential “ battleground stock “ The concern is confirmed by high insider selling, by corporate officers, 42 separate sell transactions exceeding 3.1 million shares v.s.0 buy’s at prices ranging from $ 28-$ 35.
Lastly, many expect the market to pullback by 5-10% sometime between now and the replay of the Washington DC double thriller horror movie’s " Sequestration " at the beginning of March, and US Government Debt Extension II March 27. A low beta stock could expect to experience a ratable retrenchment, higher beta issues have exaggerated movements up in good times and down during pullbacks. Put in context, during the last confrontation over the sequester in November, SPLK dropped from $ 29.23 November 1 to $ 26.10 November 13, not sustainable surpassing $ 29.23 until January 11. Additionally, the stock frequently experiences sell off’s within a week of reported earnings.
Conclusion, SPLK is a quality high growth company with strong mid/long term share appreciation potential, however at current price levels the 30-45 day risk/return is disproportionately negative. Adding to position’s after a price pullback, precipitated either by a normal market correction or sequester/debt expiration inspired retrenchment, suggests a buying range closer to the $ 28.50-$ 28.75, offers a better return with lower risk.
Comments, and fact or precedent based alternative views welcome.
SPLK Update....Stock pulled back .11% in regular trading and an additional .64% after hours on March 5, a day when the broader market index's were reaching record highs. SPLK stock technical's also under pressure. A stock's inability to participate in a market rally is frequently a sign that a stock is " trading ahead of it's ski's." Today's retrenchment was confirmed by very high volume. Taken together this data does suggest that SPLK stock is vulnerable to a much more pronounced drop, if the overall market corrects in the next 30-45 days.
The recent selling by Corporate Officers in 42 separate sell transactions exceeding 3.1 million shares v.s.0 buy’s at prices ranging from $ 28-$ 35, does not at all portend negative news for SPLK the company. It does however identify the price range where senior executives, responsible for managing the company, believe that the shares are fairly valued. Those selling include, CEO Godfrey Sullivan and CFO David Conte. While any one officer may need to diversify their portfolio or require cash, the large number of selling transactions by many officers in an easy to identify price range does suggest that they believ the risk adjusted return is biased toward stock pull back rather than appreciation in the near term. Since Splunk recently reported earnings, we can assume that company successes likely to catalyze stock appreciation are already baked into the share price. The next earnings date is late May with reporting likely in June.
we sold out yesterday, fearing out drop in last few minutes.
I manage the club money, and PAY & ESI are better for now. Also some of the other techs, where insider selling is not big for next few weeks/months. LRCX, KLAC likes. Also ARMH is a better place.