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Is Splunk Stock Trading at a Discount to Analysts’ Estimates?


May. 28 2019, Updated 9:10 a.m. ET

How does Wall Street view Splunk stock?

Among the 43 analysts tracking Splunk (SPLK), 33 have given it “buys,” while ten have given it “holds.” No analysts have given it “sells.” Analysts’ 12-month average target price for Splunk is $151.66, while their median estimate is $152. Splunk stock is trading at a discount of 27.4% to analysts’ median estimate.

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Is Splunk stock undervalued?

Though Splunk stock has fallen over 13% in May 2019, it has provided impressive returns over the years. The stock has gained 151% on an absolute basis in the last five years. Will its stock continue to rise, or will it flatline for a while? Does the recent pullback provide an opportunity for investors to enter this stock, or will it depreciate further?

Splunk stock is trading at a forward PE multiple of 53.0x. In comparison, its EPS are expected to rise 38% in 2020 and 33.9% in 2021. Its earnings are expected to rise at a compound annual growth rate of 35% in the next five years, showing that its shares are overvalued and could slide lower.

Splunk’s estimated five-year PEG (PE-to-growth) multiple is 2.3x. A PEG multiple of lower than 1 suggests that a stock is undervalued, while a multiple of higher than 1 indicates that a stock is overvalued.

Earnings and revenue growth

Though Splunk stock looks overvalued according to its PE multiple and PEG multiple, investors won’t be too concerned if the company continues to beat earnings and sales estimates going forward.

Splunk’s high valuation is supported by robust growth metrics. The stock has gained over 20% annually in the last five years. In comparison, its revenue has risen 43% annually, whereas its operating profit has risen 196%, and its EPS have risen 86%.

Analysts expect Splunk’s sales to rise 23.4% annually in the next three years and its operating profit to rise 41%.


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