Splunk Stock Faces Short-Term Pain but Long-Term Gain

On Aug. 7, Alteryx (NASDAQ:AYX) reported earnings. While the quarter was solid, guidance was not. The result decimated the share price, with the stock falling more than 28% in one-day. What does this have to do with Splunk (NASDAQ:SPLK)? SPLK stock fell more than 6% that day as big-data plays took it on the chin. 

Splunk logo on the company office in Santana Row. The company produces software for searching, monitoring, and analyzing machine-generated big data
Source: Michael Vi / Shutterstock.com

The stock is now working on its fifth straight daily decline, as shares look to carve out a temporary low. Personally, I like the pullback. The quick 11% decline can shake out some of the weak hands and suck out some of Splunk’s overbought condition. 

Despite this recent dip, remember that SPLK stock is still up over 100% from the March lows. More impressively, unlike some names with big rallies off the lows, Splunk shares hit new all-time highs amid the recovery. 

Let’s glance at some charts before moving forward. 

Trading SPLK Stock

Daily chart of SPLK stock price.
Click to Enlarge
Source: Chart courtesy of TradingView

Above is a daily chart of SPLK stock, which really highlights how strong this name has been. Shares came ripping off the March low at $93.92, but almost went on to retest that mark in April. 

Shares rallied ahead of earnings, then caught a big boost off the report in May. Now scheduled to report at the end of the month, can Splunk replicate similar pre-earnings price action?

If so, we’ll need to see a rotation back over the 50-day moving average. This mark hasn’t been tested since the stock reclaimed it in April, so to see what seems like complacent price action is somewhat disappointing. However, shares are not completely breaking down, either. 

A rotation back over this mark and the $200 level could put $210-plus back in play. 

weekly chart of SPLK stock price.
Click to Enlarge
Source: Chart courtesy of TradingView

When we look at the weekly chart, some of the concern with the 50-day moving average is alleviated when we see the 10-week moving average holding up as support. 

However, like the daily chart alludes to, we need to see a rotation back over $200 to put the bulls back in control. Otherwise we risk a move lower. That could potentially put the February high back in play at $176.31. SPLK stock should attract some buyers between there and $170, unless some very bad news develops (for instance, disappointing earnings like Alteryx).

There Are Risks

Speaking of those risks, enterprise spending could be a concern. Splunk and Alteryx aren’t perfect head-to-head comparisons, but look at the companies’ descriptions. 

Splunk: “The company offers Splunk Enterprise, a real-time data platform, which include collection, indexing, search, reporting, analysis, alerting, monitoring, and data management capabilities.”

Alteryx: “Its software platform includes Alteryx Designer, a data profiling, preparation, blending, and analytics product used to create visual workflows or analytic processes.”

Now obviously they both have other revenue services too and I’m not trying to create a perfect overlay here. I am simply pointing out that, while Alteryx beat on earnings and revenue expectations, Q3 and full-year guidance disappointed the Street. 

However, Alteryx management has been quite candid. They said that enterprise spending could slow in the near term, and it has. However, it should rebound in the future (and that’s likely true). But that doesn’t remove the short-term headwinds we have today.

If enterprise spending remains hampered, this could be a short-term risk for SPLK stock as well. 

Final Thoughts on Splunk Stock

When it comes to stocks, it’s like a long sailing trip. We must be aware of short-term obstacles — like a possible storm — but keep our sights on the destination. 

In the short term, Splunk will face headwinds. That’s evident by analysts’ consensus estimates. They forecast just 3% revenue growth and for a 115% decline in earnings growth this year. In contrast, forecasts call for 25.5% revenue growth next year to $3.05 billion and for earnings growth of more than 430%. We need to hear from management to make sure everything is still on the up and up. 

That said, the data explosion is not going to slow anytime soon. More Internet of Things, more technological devices, 5G and more information will fuel the exponential move we’re seeing in data. As data grows, so will demand for Splunk. Buy the dips.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2020/08/splk-stock-faces-short-term-pain-but-long-term-gain-what-now/.

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