{"id":58173,"date":"2021-11-20T14:20:09","date_gmt":"2021-11-20T22:20:09","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=58173"},"modified":"2021-11-20T14:20:12","modified_gmt":"2021-11-20T22:20:12","slug":"splunk-persistent-negative-income-low-relative-valuation","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2021\/11\/20\/splunk-persistent-negative-income-low-relative-valuation\/","title":{"rendered":"Splunk: Persistent Negative Income and A Low Relative Valuation"},"content":{"rendered":"\n

Splunk (SPLK) started last week with a gap down and 18.1% plunge in the wake of the resignation of CEO Doug Merritt<\/a>. I thought the sell-off was an over-reaction given Graham Smith, the Chair of Splunk\u2019s Board of Directors, stepped in to play interim CEO. However, the accompanying preliminary Q3 earnings report gave me pause. Splunk expects a -14% (non-GAAP) margin despite strong year-over-year revenue growth of 19%. I was surprised by the negative operational metric, so I looked at Splunk’s income history. Amazingly, after years and years of impressive revenue growth, Splunk has delivered negative income for all but two quarters (since at least late 2013). Suddenly, the market’s impatience makes sense.<\/p>\n\n\n\n

\"Splunk<\/a>
Splunk (SPLK) ended the week with a confirmed 200DMA breakdown and a 5-month low following news of the CEO’s resignation.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n
\"Splunk
Splunk<\/a> (SPLK) operating income has been positive just two quarters since at least 2013 despite steady revenue growth through 2019. Now, revenue growth has stalled and losses are widening.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

In early October, I made the case<\/a> for buying Splunk (SPLK). The stock broke out above its 50-day moving average (DMA) and seemed to confirm a post-earnings bottom. SPLK sprinted from there and managed to hit a 7-month high before piercing its way into a Bollinger Band (BB) squeeze. Unfortunately, that last bullish move turned into a fake-out. Sellers stepped in the next day and delivered a sudden 5.1% one-day loss. In retrospect, that reversal was a warning sign.<\/p>\n\n\n\n

The long-term weekly chart suggests that the loss for the week could be a warning sign of a larger breakdown. SPLK peaked over a year ago in August, 2020. A 23.3% post-earnings plunge last December confirmed the transition from bullishness to short-term bearishness. The stock managed to re-establish the longer-term uptrend after bottoming in the summer. The momentum from that recovery is now over, and a new downtrend may be underway.<\/p>\n\n\n\n