Are Big Data Stocks Finally Falling Flat?

I’ve been keeping my eye on the big data trend for some time now, and while I was hopeful that a few of the direct plays within the sector would be major game changers, none of the numbers I’ve seen lately are really blowing me away.

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I’m no stranger to technology growth investing. In fact, we have had several big data success stories in my GameChangers service recently — including a 15% win in Red Hat (RHT), which I talked about in a previous article.

But despite these successes, the shine is starting to wear off the apple, so to speak, and the names most familiar to those interested in big data have begun to lag behind.

Keep in mind that the overall big data trend isn’t going anywhere anytime soon — that much is certain. As companies become further integrated in the web — storing massive amounts of digital information like passwords, photos, documents and more — the tools and infrastructure to manage that data must evolve, too. That’s why I’ve been watching the sector like a hawk, waiting for the right moment to dive back in.

But that moment isn’t here yet. While I continue to believe that the following stocks are some of the most attractive pure plays available, the time still isn’t right to invest in either. 

Splunk (SPLK)

Let’s start with Splunk (SPLK), a company with software that simplifies the organization of machine data or the behavior and activity of its clients’ customers, users, servers, transactions and more. It’s the kind of data companies can use to streamline their processes and generate more profits — making Splunk’s service very valuable.

Splunk’s high-flying stock reflected the utility of that machine data engine until recently, taking a beating last week amid the wider market volatility and slipping more than 20% in just a few days. Now that the market is in correction mode, stocks like SPLK that have soared unfettered will be dragged back down to Earth. On July 24, SPLK reached a 52-week high of $76.85, but this week it’s scraping by just above $60.

Even with sales growing 50%, I’m just not sure its current enterprise-value-to-revenue multiple of 14 will hold. However, should the stock continue to fall, it could present a tempting bargain opportunity.

Tableau Software (DATA)

Another Big Data pure play is Tableau Software (DATA), which performs similar functions as Splunk’s. Its primary product, VizQL, translates drag-and-drop actions into data queries. In this way, the company puts data directly in the hands of decision makers, without first having to go through technical specialists.

Despite reporting solid quarterly results in early August, DATA has only grown weaker, which goes to show just how overvalued this stock was. Growth was strong last year and in the first two quarters of 2015, but that trend is starting to slow considerably, even as companies continue to utilize VizQL.

Year-to-date, the Russell 3000 Value Index is down more than 8% while the Russell 3000 Growth Index is roughly flat, which tells me that DATA and other growth stocks will likely suffer as those numbers start to even out through the rest of the year.

Between the unforgiving market and the dim forecast for growth stocks, I don’t believe DATA is in a position to regain its once-lofty footing in the near term. It’s possible, but not probable.

How to Play Big Data

Big data is a tricky trend right now, especially given the extreme market volatility we’ve seen lately, which is why I’m avoiding big data pure-plays altogether for the time being. Instead, I believe it’s better to own a varied basket of these software companies, even if they don’t all technically fall under the “big data” nomenclature. Plays like PegaSystems (PEGA), which helps developers write programs to capture data, and Qlik Technologies (QLIK), a solid analytics company, can help balance out some of the volatility in your tech/software portfolio.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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