Out of the blue, Splunk (NASDAQ:SPLK) is being thrust into the spotlight today on Wall Street. Splunk stock’s vertical price move might surprise you at first, but be sure to get the full story. I am bullish on SPLK stock because the company’s results and forward guidance suggest that Splunk is a tech-sector superstar in the making.
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Based in California, Splunk is a cloud computing and cybersecurity services specialist. It’s one of those companies that most people who aren’t business owners or IT specialists haven’t heard of. Yet, Splunk could become a household name in a few years.
Sometimes, I’m cautious about a stock that recently made a vertical move. In the case of Splunk stock, however, I’m willing to put my value-investing principles on the shelf and admire the company’s impressive growth and optimistic outlook.
Opinions Vary on Splunk Stock
Splunk stock finished 12.9% higher today, even though many other technology stocks were in the red. Sure, the Nvidia (NASDAQ:NVDA) stock rally was probably a contributing factor, but there were other reasons for investors to bid up SPLK stock.
Splunk’s second-quarter Fiscal Year (FY) 2024 earnings report was definitely the primary catalyst, but let’s rewind for a moment. Prior to the earnings release, analysts were positioning themselves as bullish, bearish, or neutral on SPLK stock.
In the bullish camp was RBC Capital analyst Matthew Hedberg, who maintained an Outperform rating and a $125 price target on Splunk stock. Reportedly, Hedberg envisioned “slight upside” to Splunk’s results as well as a consistent focus on profitable growth for the company.
Meanwhile, Mizuho analyst Gregg Moskowitz only offered a Neutral rating on SPLK stock. Moreover, he actually lowered his price target on the stock from $115 to $108. Nevertheless, Moskowitz acknowledged that his fundamental checks for the July period for Splunk “were healthy overall.”
Given today’s price action in Splunk stock, I have a funny feeling that Moskowitz will have to raise his price target fairly soon. The shares already tested $114 halfway through the day’s trading session, and Splunk provided plenty of reasons for analysts to lean bullish in 2023’s second half.
Splunk Boosts Sales, Narrows Net Loss
With all of that in mind, let’s see if Splunk stock’s powerful single-day rally is justified. First of all, Splunk’s Q2 FY2024 revenue grew 14% year-over-year to $910.59 million, beating the consensus estimate of $889.29 million. Plus, the company’s total annual recurring revenue (ARR) increased by 16% year-over-year to $3.858 billion. So far, so good.
Turning to the company’s bottom line, Splunk narrowed its net loss from $209.71 million (or $1.30 per share) in the year-earlier quarter to $63.25 million ($0.38 per share) in Q2 FY2024. That’s quite an improvement, wouldn’t you agree? Besides, on an adjusted basis, Splunk’s EPS of $0.71 surpassed the consensus forecast of $0.45.
For the current quarter, Splunk is guiding for approximately $3.98 billion of total ARR as well as revenue between $1.02 billion and $1.035 billion. These estimates indicate that Splunk’s management expects the current quarter to be even better than Q2.
Naturally, Splunk President and CEO Gary Steele felt compelled to bring up the topic of artificial intelligence (AI) in the company’s press release. “Through our ongoing focus on accelerating innovation and harnessing AI, we unveiled many important advancements during the quarter to help customers strengthen their overall digital resilience and security posture,” Steele proclaimed.
Is Splunk Stock a Buy, According to Analysts?
On TipRanks, SPLK comes in as a Moderate Buy based on 19 Buys and 10 Hold ratings assigned by analysts in the past three months. The average Splunk stock price target is $125.77, implying 11.5% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SPLK stock, the most accurate analyst covering the stock (on a one-year timeframe) is Stephen Bersey of Daiwa, with an average return of 32.52% per rating and a 92% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Splunk Stock?
Splunk stock made a big single-day move, but it has traded above $200 before, so I believe that there’s potentially more room to run higher. There’s no guarantee that the stock will get to $200, of course, but I wouldn’t rule this possibility out, as Splunk appears to be growing its sales and ARR.
In other words, Splunk’s time in Wall Street’s spotlight could last for a while. It’s fine to wait for the share price to pull back somewhat, but investors can also consider a long position in SPLK stock now if they want immediate exposure to a notable up-and-coming tech-market standout.
