When Splunk Inc. (NASDAQ:SPLK) announced its most recent earnings (31 October 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Splunk has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see SPLK has performed.
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Was SPLK’s recent earnings decline worse than the long-term trend and the industry?
SPLK is loss-making, with the most recent trailing twelve-month earnings of -US$313.4m (from 31 October 2018), which compared to last year has become more negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -US$198.1m. Each year, for the past five years SPLK has seen an annual increase in operating expense growth, outpacing revenue growth of 33%, on average. This adverse movement is a driver of the company’s inability to reach breakeven.
Eyeballing growth from a sector-level, the US software industry has been growing its average earnings by double-digit 16% in the previous year,
Even though Splunk is currently unprofitable, its has a good cash runway to meet its upcoming operating expense (should SG&A and one-year R&D remain constant at the current level of US$1.6b) over the next year. This is a sign of good cash management.
What does this mean?
Splunk’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to forecast what will happen in the future and when. The most insightful step is to assess company-specific issues Splunk may be facing and whether management guidance has regularly been met in the past. I recommend you continue to research Splunk to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SPLK’s future growth? Take a look at our free research report of analyst consensus for SPLK’s outlook.
- Financial Health: Are SPLK’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 October 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.