By Rob Otman
Splunk (Nasdaq: SPLK) is a large cap company that operates within the software industry. Its market cap is $14 billion today and the total one-year return is 42.96% for shareholders.
Splunk stock is beating the market, and it reports earnings soon. But does that make it a good buy today? To answer this question we’ve turned to the Investment U Stock Grader. Our research team built this system to diagnose the financial health of a company.
Our system looks at six key metrics…
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✓ Earnings-per-Share (EPS) Growth: Splunk reported a recent EPS growth rate of 47.83%. That’s above the software industry average of -22.94%. That’s a great sign. Splunk’s earnings growth is outpacing competitors.
✗ Price-to-Earnings (P/E): The average price-to-earnings ratio of the software industry is 74.73. And Splunk’s ratio comes in at 191.18. Its valuation looks expensive compared to many of its competitors.
✓ Debt-to-Equity: The debt-to-equity ratio for Splunk stock is 0%. That’s below the software industry average of 39.89%. That’s a good sign. Splunk’s debt levels are not out of control.
✗ Free Cash Flow per Share Growth: Splunk has decreased its FCF per share relative to its competitors over the last year. That’s not good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth.
✗ Profit Margins: The profit margin of Splunk comes in at -15.4% today. And generally, the higher, the better. We also like to see this ratio above competitors. Splunk’s profit margin is below the software average of 7.99%. So that’s a negative indicator for investors.
✗ Return on Equity: Return on equity tells us how much profit a company produces with the money shareholders invest. The ROE for Splunk is -38.87% and that’s below its industry average ROE of 22.63%.
Splunk stock passes two of our six key metrics today. That’s why our Investment U Stock Grader gives it a Hold with Caution.
Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That’s why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth.
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Source:: Investment You
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