Splunk Inc. [NASDAQ: SPLK] recorded a strong performance in Q1. Analysts were expecting a loss of 14 cents per share, but the company beat that to post a profit of 2 cents for every share. This is driven by its strong revenues of $425 million, against Wall Street’s expectation of $395.4 million. These revenues are a 36% increase when compared to the same quarter last year. This follows a trend in Splunk’s revenues in the past year. Revenues have been going up, and the company now projects that revenues for the 2019 fiscal year will be $2.25 billion. This projection beats Wall Street’s expectation of $2.2 billion for the year 2019. In spite of these strong results, the stock was down by 5.43% in Thursday trading, and is also in the red in pre-market trading.
From the day charts, Splunk is bearish in the short-term. It has broken below key support at $128.73 on the 200-day MA. This means that there is strong selling momentum in this stock at this point. The positive results seem not to have positively impacted on its price, and help reverse the trend. However, from a look at the monthly charts for a more defined trend, there is a possibility that it could reverse and turn bullish in the near-term. That’s because, it is trading at a price level it has reversed at in the past, even though it recently broke major support on the 50-day MA at $131.26.
There are a number of factors that support such a reversal and possible bullish momentum in the future. The first one is that, this company’s revenues are growing. Quarterly revenues year-on-year are already up by 35.30%. This is a good indicator that there is strong demand for this company’s products. In essence, in the future, some of its numbers that are now negative, such as the net income, will turn positive. As a consequence, this would also push the return on equity into positive territory.
Other positive fundamentals include its liquidity, and prudent debt management. This is quite evident in its current ratio which stands at 3.33. Essentially this means that Splunk has enough assets to cover all its short-term debt obligations and still be left with around 3 times more in current assets. In an environment such as the current one, where the trade war is making the markets highly volatile and unpredictable, this is a plus. On top of that, the company’s positive operating cash flows of $296.45 means that it has enough money to keep its operations going, irrespective of conditions in the external environment.
With all these positive fundamentals, it is not surprising that some analysts expect it to perform well. This consensus might seem quite accurate for a stock that has returned 23.45%, while the S&P 500 has returned around 5.25%.