![]() First, Microsoft was consistently profitable, even pre-IPO. In my latest article on this name, I dispensed with the argument that Splunk is a "young Microsoft" ( MSFT) for two reasons. ![]() How is this good for investors? What catalysts will alter this strong negative relationship between sales and earnings. If growing sales don't lead to profitability, what does? In other words, the more the company sells, the more it loses. In both of my previous two missives on this name, I made what I (still) consider to be a bog simple argument. These give most of the return flavour at a fraction of the risk calories. For those people who disagree with me, and insist on staying long here, I recommend buying the September at the money calls. Although the shares are less expensive than they were and are trading on the low end of their historical range, they're still not cheap enough in my view. ![]() Years ago I identified a disturbingly strong negative relationship between the top and bottom lines at this business, and that relationship persists. With all that out of the way, I'll get to the thesis statement. This means that if you venture into the article properly, though, I don't want to hear any complaints about bad jokes or my tiresome use of "dear reader" etc. If you read this, you don't need to flip through the entire thing, and thus you don't need to be exposed to my bad jokes, puns, thinly veiled excuses to brag, etc. I understand and embrace the fact that my writing is sometimes "a bit much." For that reason, I offer a thesis paragraph at the beginning of each of my articles that gives you the gist of my thesis. I hope I'm not spoiling the surprise, but the fact is that I'm recommending a similar trade today. Additionally, in my previous missive, I recommended that investors switch to call options in lieu of shares, and I want to review how that trade worked out. I thought I'd look at whether it's worth buying this company ahead of earnings by looking at the most recent financial performance here, and by looking at the stock as a thing distinct from the underlying business. In my view, a stock trading at $114 is much less risky than that same stock when it was trading at $186 (the price it closed on the day I wrote my last article). Also, they're about to release earnings, so I think it's worth writing about the investment ahead of the announcement. From mid-November to now, the shares have absolutely cratered, down 33.5%, and this has put the company back on my radar. ( NASDAQ: SPLK), and in that time the shares are down about 38% against a gain of ~39.5% for the S&P 500. It's been about 20 months since I wrote my latest cautionary piece on Splunk Inc. ![]() Sundry Photography/iStock Editorial via Getty Images ![]()
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