<p>After increasing by more than 15% in 2020, the shares in Splunk (NASDAQ: SPLK) are now negative for the year. It even seems that technical stocks with seemingly little exposure to coronavirus are being swept up in market uncertainty. Last week, the Splunk share fell 9.2% compared to the Nasdaq 100 index’s 7.6% drop.
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Even with market volatility, Splunk surpasses the broader market. Prior to this week’s sales, the S&P 500 index rose by approximately 5% for the year. However, the index has given up these gains and now the meter is in negative territory for the year.
Splunk will report the results on March 4. The whisper rate says the company will deliver positive earnings per share (EPS) of $ 1.00. That would beat the consensus estimate of 96 cents per share and increase by more than 70% from the previous quarter.
Thoughtful investors will wonder if the latest step is just a bolt in the road. Or is it the beginning of a major correction. Coronavirus introduces stock market uncertainty in a way that has not been seen since the 2007 financial crisis.
Is Splunk Stock overvalued?
In Splunk’s earnings report for the fourth quarter of 2018, the company reported 40% higher sales compared with the previous year. Their net loss decreased to 55.7 million. And the company had a negative earnings per share (EPS) of 38 cents.
In its most recent revenue report, the data analytics software maker reported revenue of $ 603 million, an increase of 30% over the previous year. It also had earnings of 60 cents per share. At the time, Splunk projected $ 780 million in revenue for the fourth quarter. This would be about 5% above the consensus estimate.
In January, my InvestorPlace colleague Luke Lango made the case that the Splunk share was overvalued. As Lango wrote his article, the stock rose about 10% from its price at the time of writing ($ 150).
But Lango also predicted that the stock would go higher despite these concerns. The Splunk share rose almost 10% in February.
Had it stayed there, I might be a little skeptical of the stock‘s future earnings. After all, analysts have given the Splunk stock a 12-month price target of $ 164. Prior to the sale, Splunk traded for over $ 170.
But disadvantages and even corrections can create opportunities. And the recent downturn may just be the signal investors were looking for.
Good stocks do not suddenly become bad
In times like these, it helps to remember that good stocks do not suddenly become bad. The foundation and the wise technical analysis must be your guide. And when it comes to Splunk, the company is a leader in an industry that will only get bigger.
Matt McCall and the InvestorPlace research team explained why the demand for big data will only increase. Splunk offers software tools that help them analyze data and create solutions in real time.
The more Splunk falls during this market sale, the more opportunities investors have to take the next stage of their rally. Splunk may defy its value, but it is best not to fight the trend.
At the time of writing, Chris Markoch had no position in any of the above securities.