Why Splunk Inc. Stock Tumbled Today

Is Splunk's drop meaningful? Or just another movement?

Steve Symington
Steve Symington
Jul 8, 2014 at 3:52PM
Technology and Telecom

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of operational intelligence software specialist Splunk Inc. (NASDAQ:SPLK) dropped more than 11% Tuesday amid a broader pullback in momentum stocks in the tech sector.

So what: For perspective, the tech-heavy NASDAQ Composite Index simultaneously dropped by nearly 1.8% during Tuesday's intraday trading. And going into yesterday's close, Splunk stock had already risen more than 30% since touching a new 52-week-low just over a month ago. With shares now valued at around 18.5 times trailing 12-month sales, and 436 times next year's estimated earnings, it's no surprise Splunk pulled back harder than many other tech stocks today.

Now what: Splunk's recent lows were set only a few days after the company announced better-than-expected first quarter results, but left the market wanting more with full-year results which "only" brought it in line with what analysts were already modeling. Today's pullback, then, effectively brings Splunk shares to just below where they stood before that quarterly report.

As it stands, and considering Splunk's still-lofty valuation, I'm personally content continuing to watch this one from the sidelines. For long-term investors who already own the stock, however, today's volatility should ultimately prove but a blip in the radar.