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Splunk Investors Still in a Funk Despite Strong Revenue Growth

NEW YORK (TheStreet) – Splunk (SPLK - Get Report) investors were desperate for some good news ahead of the company's fiscal second-quarter earnings report last week. Splunk didn't disappoint.

Helped by a 52% year-over-year surge in revenue, the San Fransisco-based big data company delivered a solid beat, which sent the stock soaring almost 20%.

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Shares are now around $57, closing Wednesday down almost 5% and giving back a meaningful portion of last week's gains. 
As it stands, Splunk investors are still in the hole by roughly 17% in 2014.With larger players like IBM (IBM) and Hewlett-Packard (HPQ) positioning for Big Data dominance, Splunk's second-quarter victory, while inspiring, may be short-lived.

An email sent to Splunk requesting clarity on the company's growth metrics and forecasts was not immediately returned.

The market seems divided on where the company is heading next.

Gregg Moskowitz, analyst at Cowen & Co., is bullish. Following the report Moskowitz reiterated his outperform rating and raised his price target to from $55 to $60. In his research note to investors, Moskowitz said,

"Splunk is extremely well positioned to capitalize on Big Data, and the use cases continue to grow steadily, in turn expanding the addressable market.”

To justify his bullishness, Moskowitz upped his full-year revenue forecast by 4.5% to $426.6 million and now believes Splunk can earn a profit of 2 cents per share ahead of his prior target of breakeven.

At the same time, however, Richard Davis of Canaccord Genuity cut his price target by more than 14%. Although Davis' new price target of $60 (from $70) represents an 11% premium, Davis raises a great point regarding -- what he calls -- "multiple compression." This is when a stock price fails to move upward (and may go down) despite strong earnings.

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In the case of Splunk, the shares are too expensive, even with the year-to-date decline. Consider that at around $56 per share the stock is trading at a price-to-earnings ratio of negative 86, according to Nasdaq.com. Based on next year's estimates of a loss of $1.48 per share, the P/E is still at a negative 40.

So where's the value?

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