One of the benefits of the new digital economy is the large amounts of available data that can shed light on what’s happening within an organization’s operations. Companies often need data analytics software to turn that data into actionable insights, and Splunk (Nasdaq: SPLK) is a leader in that field, taking in a hefty $517 million in its last quarter, up 33% over the previous year’s level.
Splunk helps businesses organize and analyze both data locked up in old legacy computer systems and data generated by newer cloud-based operations. Its analytics engine has a broad range of uses, from monitoring equipment connected to a network, to payment processing activity, to coordinating cybersecurity efforts.
Its stock is down from its summer highs, in part because management projected negative operating cash flow of $300 million for fiscal 2020 – driven by a new pricing structure and a faster-than-expected shift from perpetual licenses to cloud-based renewable subscriptions.
Over the long term, that shift will mean more predictable revenue streams, with Splunk adding more than 400 new enterprise customers in the first quarter of fiscal 2020 alone, including Chipotle Mexican Grill, Cerner and Slack. Risk-tolerant long-term investors might consider Splunk for their portfolios.
Ask the Fool
Q: Is a company’s “float” the same as its outstanding shares? – B.B., Escondido, California
A: Nope. The term “shares outstanding” refers to all shares of stock that a company has issued. Very often, some are “restricted” – for example, if they’re held by insiders (such as founders, executives and/or employees) who cannot sell until the shares vest. Those folks typically hold on to their shares for a long time. The remaining shares are available for trading, are owned by the public, and change hands more often. They’re the float.
Imagine Scruffy’s Chicken Shack (ticker BUKBUK), with 100 million shares outstanding and insiders owning 30%. That leaves 70%, or 70 million shares, as the float. It’s good to check out a company’s float, because if it’s small (“thinly traded”), the stock can be volatile. With a limited number of shares, even moderate buying (or selling) activity can push the price up (or down) sharply.
Q: What do you think about buying stocks that are near their 52-week lows and selling ones near their highs? – S.C., St. Augustine, Florida
A: Fallen stocks are certainly worth investigating, as their problems may be temporary, leaving them likely to recover and rise in value. But they also may be facing insurmountable challenges that will sink them further. You need to take a close look.
As for selling, think twice before selling a stock near its 52-week high – the best stocks will keep hitting new highs over decades, rewarding patient investors handsomely. If you sell a stock after it doubles in value, you’ll miss out if it later triples or quadruples. Rather than focusing on a stock’s highs and lows, try to figure out where the company is going in the long term.
My dumbest investment
My dumbest investment? I lost money on Mattel – but it was still good to be part of a great American company. – S.L.N., online
The Fool responds: You have a great attitude, recognizing that when we buy stock in companies, we become part-owners and share in their good or bad fortune. Depending on when you buy and sell your shares, you’ll realize a gain or loss, regardless of whether the company is a sound one or a disaster.
Mattel isn’t a hopeless disaster, but it has been struggling in recent years and posting losses. That’s due in part to the bankruptcy of Toys R Us, which had been a major sales channel, and to competition from low-cost producers in China. There have been multiple CEO changes, too. Mattel’s shares were trading above $30 a few years ago, and were recently near $10 per share.
Burdened with close to $3 billion in debt and less than $200 million in cash and equivalents, it has rebuffed buyout offers from MGA Entertainment and Hasbro. It even slashed its dividend by more than half in 2017, only to fully suspend it soon after.
All is not lost, though, and some see the company starting to turn itself around. It does have valuable assets in brands such as Barbie, Hot Wheels, American Girl and Fisher-Price, and sales have recently been growing, particularly internationally.
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