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Splunk Inc. (NASDAQ: SPLK) is the data and analytics stock that has been left behind. While many other data-related stocks have continued to move higher, the Splunk stock price has cooled off in 2021.
So far, the stock is off by more than 16% year to date.
This is often when the mainstream media rush in and scream "BUY," but it might be a little early for that.
Don't get us wrong – Splunk is a solid business. It offers its customers what it calls a scalable and reliable data platform for investigating, monitoring, analyzing, and acting on your data.
Businesses can use Splunk software to gather and analyze enormous amounts of information.
The software solutions offered by Splunk can help a company manage its IT infrastructure, provide greater security, and develop new software applications to improve its performance.
Splunk even had a fantastic 2020 as the stock rose from around $120 to over $220. So far this year, the stock has dropped back to less than $140 a share.
Sure enough, some analysts are falling all over themselves to recommend the stock right now as the price pulls back.
Here is why it's probably not the right thing to do.
What the Current Splunk Stock Price Means
It doesn't help the sentiment surrounding Splunk shares that the CEO and Chief Accounting Officer are selling large stock blocks even as the price falls.
We read recent reports by analysts and commentators that rationally discussed the opportunity to view this as a pullback to just 10 times sales.
The fact that Splunk is no longer one of the most expensive stocks on the planet does not make the stock a bargain at 10 times revenue.
Splunk no longer has the characteristics of a great growth stock.
Margins are not expanding at the same rate as a few years ago. Sales and earnings growth is beginning to slow.
The stock is posting negative earnings surprises, and Wall Street analysts are lowering their earnings estimates for the company.
The bottom line is that Splunk no longer has the characteristics of a great growth stock and cannot be priced like one anymore.
It is still a good company. It is just not an outstanding stock right now.
Technically, Splunk is a broken stock.
The price is below the 200-day moving average, and the 50-day MA has also crossed below the 200-day to confirm the sell signal. Both the 20- and 50-day averages have negative slopes, and the 20- day is close to rolling over to the downside as well.
Why Splunk Stock Is Not Yet a Buy
Traders will certainly continue to apply selling pressure to the stock. They know that a stock with broken momentum like Splunk will probably not have a V-shaped bottom.
After falling as far as Splunk shares have, as quickly as they have, the stock probably needs to consolidate and form a base before recovering.
Even with recent research reports from major firms like Citigroup and Credit Suisse that have price targets well above the current stock price, the selling continues.
WARNING: It's one of the most traded stocks on the market every day – make sure it's nowhere near your portfolio. WATCH NOW.
The stock had done very well since its IPO back in 2012, but it is hard to make a case for the company being a high-multiple growth stock in the years ahead. The analysts that follow the stock only expect about 5% annual earnings growth, on average, over the next five years.
Splunk is also not expected to be profitable in 2021 or 2022. The consensus is that it will make $0.25 a share in 2025.
The wildest cockeyed analyst has an earnings estimate for 2023 of $1.62.
That means that Splunk is trading at over 80 times the most optimistic estimate for earnings in 2023.
Much like many of Ricky "Wild Thing" Barnes' pitches in the movie Major League, that's just a little high.
Trying to buy the shares on this pullback will be like trying to catch a falling knife.
It might work, but it's really going to hurt if it doesn't.
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