Splunk’s (SPLK) stock performance has been stellar over the years. The stock has almost doubled in the last three years. Splunk stock has generated returns of 4.4% year-to-date due to the recent pullback. The shares have fallen more than 20.0% since the beginning of May.
Splunk announced its first-quarter earnings in the last week of May. The company reported sales of $425 million—a rise of 36% YoY (year-over-year). Splunk’s adjusted EPS was $0.02—way above its earnings of -$0.07 in the first quarter of 2018.
Analysts expected Splunk to post sales of $396.0 million with an EPS of -$0.14 in the first quarter. Splunk expects sales of $485 million in the second quarter and $2.25 billion in fiscal 2020—higher than analysts’ revenue forecast of $479.4 million for the second quarter and $2.22 billion for 2020.
Investors were concerned about Splunk’s cash flow metrics. Since Splunk is moving towards a subscription-based model, deferred sales were impacted, which drove the company’s cash flow lower.
Splunk’s enterprise customers will be invoiced annually, which is the case with subscription contracts. Previously, Splunk received payments up front, which is the case with perpetual contracts.
Splunk stock has a forward PE ratio of 48.7x. Analysts expect the company’s earnings to expand 38% in 2019, 30.0% in 2020, and 33% annually in the next five years. Splunk stock doesn’t seem too overvalued at the current prices.
Analysts’ target price
Among the 43 analysts tracking Splunk, 33 recommended a “buy” and ten recommended a “hold.” There weren’t any “sell” recommendations. Analysts have a 12-month average target price of $151.66, which indicates that Splunk stock is trading at a discount of 38.5% to the average estimate.