Splunk’s most recent 8-K is worth mentioning. When checking in on a company, we’ll look at their latest regulatory filings to see what meaningful events have taken place. The product is priced primarily on the amount of data indexed, which is a great business model to have when the amount of big data on this planet is expected to grow exponentially with technologies like global internet, 5G, and IoT. It’s been about 14 months since we last wrote about Splunk, a company that makes sense of “machine data” which is basically the data exhaust that happens as a result of running loads of enterprise apps in an organization. It’s easy to argue we’re buying Splunk’s future revenue growth at a fair valuation relative to its peers. To put that in context, here’s a table that shows relative valuations of enterprise AI/big data stocks using our valuation ratio ( lower is better). We can also use these numbers to produce our standard valuation ratio – market cap / annualized sales – which gives us ( 21 / 2.98) a value of 7. So, there’s a path to continuing revenue growth. That means if the next three quarters are at least $745 million in revenues, Splunk will handily beat last year’s revenues by +33.6%. If we annualize Q4-2021 revenues ( 4 * 745 million) we get $2.98 billion. Our investment methodology focuses on revenue growth as one of the most important metrics to watch, so we’re happy to see that’s back on track. Splunk quarterly revenues – Credit: Yahoo Finance Looking at the annual data shows a company that’s been rocked by The Rona with revenues declining about -5.5% in 2021 ( Corporations use something called a fiscal year, which means their accounting year can be finished even though the actual year isn’t. The first thing we want to look at are some basic financials. What investors should be asking is “has my thesis changed?” In the case of Splunk’s falling stock price ( down -42% from a peak of $219.33 a share), we want to make sure our thesis hasn’t changed as we continue accumulating at these prices. People always Google “why is stock price X falling” when things start going south. Today, we’re going to talk about why Splunk’s annual revenues appear to be falling along with their stock price. Today, both of those positions are in the red, which means we’re accumulating them at an even bigger discount. Of the 32 positions we’re holding right now, two of them we engaged in a bit of market timing on – Alteryx ( AYX) and Splunk ( SPLK) – which dropped -40% and -25% respectively at which time we went long. No matter how hard we try to follow best practices – diversify, don’t try to time the markets, use dollar cost averaging – we always find ourselves reverting back to bad habits.

Splunk stock drop