Splunk Q4 Earnings Preview: Buy SPLK Stock Amid Coronavirus Selloff?

Shares of Splunk (NASDAQ:SPLK) have been hammered along with the rest of the market amid the coronavirus selloff. So, let’s see what’s going on with the data-analytics-software company at the moment and what to expect from its Q4 fiscal 2020 financial results that are due out on Wednesday, March 4.

Market Selloff

The Dow, the S&P 500, and the Nasdaq all tumbled into a correction—down 10% from their recent highs—at warp speed this week as the spread of the coronavirus outside of China caused a market-wide selloff. Friday’s downturn followed a Thursday that marked the Dow’s largest one-day collapse in history and helps drag stocks down toward their worst week since the financial crisis.

The coronavirus continues to spread outside of China and the CDC has called on businesses, schools, and people to prepare for the possible spread in the U.S. The Chinese economy’s standstill has already forced Apple (NASDAQ:AAPL) , Microsoft (NASDAQ:MSFT) , Mastercard (NYSE:MA) , and others to lower their guidance.

If people in the world’s second-largest economy aren’t able to return to work soon, many fear it will dent growth and profits in the U.S. and around the world.

What’s Going On with Splunk?

Splunk is a data-analytics-software firm that has grown quickly in the big-data age. The company aims to turn data into doing with its new “Data-to-Everything Platform.” And SPLK’s revenue has climbed from $451 million in 2015 all the way to $1.8 billion in fiscal 2019.

The San Francisco-based firm’s technology is designed to help “investigate, monitor, analyze and act on data at any scale, from any source over any time period.” SPLK in late November topped our Q3 earnings and revenue estimates as it nears the completion of its transition to a subscription or renewable model.

Last quarter, the company signed 440 new enterprise customers and its software revenues surged 40%, while its cloud segment jumped 78%. “Data has emerged as the strategic asset as more and more enterprises and government agencies around the globe are investing in data-centric digital strategies,” CEO Douglas Merritt said in prepared remarks.

“We believe data is the answer to many of the world's most pressing problems and its greatest opportunities.”

Other Fundamentals

The nearby chart shows that SPLK stock is up 56% in the last two years, which outpaces its industry’s 8.5% average climb. Shares of Splunk have also climbed 130% in the last 36 months. However, shares are only up 8% in the last year, and the stock is down 16% in the last week-plus from its recent highs. The stock was trading at $145 per share as of late afternoon Friday.

Meanwhile, Splunk’s PEG ratio, which takes into account growth, sits at 2.01. This marks a discount compared to its industry’s 2.45 average. With that said, the firm is still firmly in its growth phase and investors should consider it as such, as it doesn’t offer much in the way of more traditional valuation metrics.

Outlook

Looking ahead, the company’s fourth quarter revenue is projected to climb 26% to $783.9 million, based on our current Zacks estimates. Investors should note that this would mark its slowest quarterly top-line expansion in a few years.

Overall, Splunk’s full-year fiscal 2020 revenue is projected to climb 30.5% from $1.8 billion to reach $2.35 billion. Peeking ahead to 2021, the company’s sales are expected to jump 22.5% higher to hit $2.88 billion, which would represent a rather substantial slowdown compared to recent years.

In fact, it would mark the first-time Splunk’s growth wouldn’t come in higher than 30% since the company went public in 2012. For instance, SPLK’s sales climbed 38%, 39%, 41%, and 48% in the last four years, respectively.

At the bottom end of the income statement, Splunk’s adjusted earnings are projected to pop 3.2% to reach $0.96 per share. The big-data firm’s 2020 EPS figure is expected to climb 41% higher to $1.87 a share, with 2021 projected to come in another 23% higher.

Plus, the company boasts a strong history of quarterly earnings beats, including a 74% average outperformance over the trailing four quarters.

Bottom Line

Splunk is currently a Zacks Rank #3 (Hold) that earns some rough grades for Value, Growth, and Momentum in our Style Scores system. Plus, SPLK’s industry rests in the bottom 40% of our more than 250 Zacks industries at the moment.

Therefore, with Splunk’s sales growth expected to slow substantially next year it might be best to stay away from the stock until after it reports its earnings results, especially given the current market conditions and uncertainty.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>