Splunk (Splunk) Predictability Rank

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What is Splunk Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Splunk Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Splunk (Splunk) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Technology » Software » Splunk Inc (NAS:SPLK) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

S0U:Germany S0U:Germany S1PL34:Brazil

Address

270 Brannan Street, San Francisco, CA, USA, 94107

Website

https://www.splunk.com

Splunk is a cloud-first software company that focuses on analyzing machine data. The company is a major player in two markets: security, and full-stack monitoring and analysis. The San Francisco-based firm focuses on enterprise clients, with more than 90% of the Fortune 100 using its solutions. The firm's top line consists of the sale of software licenses, cloud subscriptions, and maintenance and support.

Executives

Scott Morgan	officer: General Counsel and Secretary	C/O SPLUNK INC.,270 BRANNAN STREET, SAN JOSE CA 94107
Christian Smith	officer: SVP, Chief Revenue Officer	C/O SPLUNK INC., 270 BRANNAN ST CA 94107
Gary Steele	director, officer: President and CEO	C/O PROOFPOINT, INC., 892 ROSS DRIVE, SUNNYVALE CA 94089
Elisa Steele	director	1601 CLOVERFIELD BLVD, STE 620 SOUTH, SANTA MONICA CA 90404
Yamini Rangan	director	333 BRANNAN STREET, SAN FRANCISCO CA 94107
Brian Kayman	officer: Chief Accounting Officer	270 BRANNAN STREET, SAN FRANCISCO CA 94107
Tom Casey	officer: SVP, GM Platform	C/O SPLUNK INC., 270 BRANNAN ST CA 94107
Brian Keith Roberts	officer: SVP & Chief Financial Officer	C/O LYFT, INC., 185 BERRY STREET, SUITE 5000, SAN FRANCISCO CA 94107
Richard P Wallace	director	KLA TENCOR, 160 RIO ROBLES, SAN JOSE CA 95134
David R Tunnell	director	C/O HELLMAN & FRIEDMAN, 415 MISSION STREET SUITE 5700, SAN FRANCISCO CA 94105
Jason Child	officer: SVP & Chief Financial Officer	C/O SPLUNK INC., 270 BRANNAN ST., SAN FRANCISCO CA 94107
Shawn Bice	officer: President of PROD & TECH	C/O SPLUNK INC., 270 BRANNAN STREET, SAN FRANCISCO CA 94107
Timothy Emanuelson	officer: Chief Accounting Officer	C/O SPLUNK INC., 270 BRANNAN STREET, SAN FRANCISCO CA 94107
Luis Felipe Visoso	director	C/O UNITY SOFTWARE INC., 30 3RD STREET, SAN FRANCISCO CA 94103
Graham Smith	director	301 BRANNMAN ST, SAN FRANCISCO CA 94107