SPLK Chart

SPLK data by YCharts.

What: Shares of Splunk (NASDAQ:SPLK) fell 10.7% in September, according to data from S&P Capital IQ. The maker of software tools used to analyze massive data collections generally followed a muted sector trend last month, but stumbled and missed out on one of the Big Data industry's few bright moments.

So what: At the very end of August, Splunk reported strong second-quarter results and rosy forward guidance. But the stock fell anyway, as analysts and investors were reminded just how lofty Splunk's valuation multiples are. So the report was followed by analysts adjusting their price targets to more closely match the P/E multiples of sector peers. Even some of Splunk's bulls started slashing their target multiples, while sticking to their buy ratings.

And then the Chinese economy shook up the entire market. Splunk went along for that negative ride, too, only faster than most stocks because it's matched to nosebleed valuations.

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.

Now what: I'd show you a spiffy chart of Splunk's massive ratios, but the company is still reporting negative trailing earnings. You can't build a P/E ratio out of negative earnings, let alone entire charts.

But the company does generate positive free cash flows -- and healthy ones at that. Thirty-three percent of Splunk's trailing sales trickled all the way down the cash flow statement, turning into free cash at the end. Still not impressed? Consider this: Apple only keeps 23% of its revenues in the form of free cash flows at the end of the day.

Yet, Apple's market cap sits at 12.2 times trailing free cash flows. Splunk? Well, have a look:

SPLK Price to Free Cash Flow (TTM) Chart

SPLK Price-to-Free Cash Flow (TTM) data by YCharts.

So, yeah, Splunk shares have come a long way down in recent months but the stock remains very richly valued. September was a period of adjustment, as investors tried to figure out whether this business really should be worth more than $7 billion right now. And in many cases, the answer was no.