SUMO: Sumo Logic vs. Splunk: Which Cloud Stock is a Better Buy?

Sumo Logic Inc. (SUMO) and Splunk Inc. (SPLK) are involved in cloud computing and data analysis. A machine data analytics company, SUMO’s intelligence platform enables organizations to find solutions through digital transformation, applications, and cloud computing. SPLK’s software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data.

The COVID-19 pandemic has accelerated the shift toward cloud-based computing platforms because companies and entire communities had to adapt to remote working to remain operational or employed amid the pandemic. Because most companies are expected to continue with remote structures in the post-vaccine world given its benefits over pre-pandemic working arrangements, SUMO and SPLK are expected to gain in the upcoming months.

In terms of year-to-date performance of the two companies, SUMO is a clear winner with 29.2% returns versus SPLK’s 1.4%. But which of these two stocks is a better pick now? Let’s find out.

Latest Movements

SUMO announced on February 2 that its Continuous Intelligence Platform had received Federal Risk and Authorization Management Program (FedRAMP) authorization at a Moderate impact level. This will enable the company to help public-sector organizations attain real-time insights into complex on-premises and cloud environments, and further strengthen their security and compliance, while optimizing performance.

The company announced the appointment of Tracey Newell to its board of directors on December 7. to help guide SUMO’s growth and market leadership. In November, SUMO announced that its Cloud SIEM solution would be integrated with Amazon.com, Inc.’s (AMZN) AWS Network Firewall, which is a new managed service that makes it easy to deploy essential network protections for all AMZN Virtual Private Clouds on AWS.

In November, SPLK signed an agreement to acquire Flowmill, which is a Palo-Alto based cloud network observability company with expertise in network performance monitoring (NPM).Retired Army General Dennis Via joined SPLK’s Board of Directors in November, bringing more than 40 years of military, technology and public sector leadership experience to the role.

In October, SPLK unveiled the latest enhancements to Splunk Cloud and Splunk Enterprise. The enhancements are expected to enable customers to accelerate their Cloud transformation with a single, modern data platform. SPLK also reported enhancements to its portfolio for IT operations, including the launch of Splunk Service Intelligence for SAP solutions, a new version of Splunk IT Service Intelligence (ITSI), Splunk Infrastructure Monitoring Add-On, and Splunk IT Essentials.

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Recent Financial Results

Last September, SUMO administered an initial public offering that raised $342.7 million. The company delivered strong results for its first quarter as a public company (its fiscal 2021 third quarter ended October 31, 2020) The company’s revenue increased more than 28% year-over-year to $51.87 million. Its gross profit increased 30.6% year-over-year to $38.27 million. SUMO also narrowed its net loss to $23.93 million from $28.62 in the third quarter of 2019.

SPLK’s total revenues for the fiscal 2021 third quarter ended October 31, 2020 increased 13.6% sequentially to $558.57 million. However, its total revenue declined 10.8% on a year-over-year basis. The company incurred a net loss of $201.53 million, which is significantly more than its net loss of $57.64 million for the third quarter ended October 31, 2019.

Expected Financial Performance

Analysts expect SUMO’s revenue and EPS to increase 17% and 35.4%, respectively, in 2022. In comparison, the market expects SPLK’s revenue and EPS to increase 20.8% and 69.2%, respectively, over the same period.

Profitability

SPLK’s trailing-12-month revenue of $2.28 billion is higher than SUMO’s $192.80 million. Moreover, SPLK is slightly more profitable, with a gross margin of 76.9% versus SUMO’s 70.2%.Also, SPLK’s leverage free cash flow margin of 9.5% compares favorably with SUMO’s negative values.

Valuation

In terms of trailing 12-month EV/S, SUMO is currently trading at 17.47x, slightly more expensive than SPLK, which is currently trading at 12.54x. However, SPLK is more expensive both in terms of trailing-12-month P/S (11.98x versus 5.31x) and trailing-12-month P/B (17.31x versus 8.61x).

So, SUMO is the more affordable stock.

POWR Ratings

While SUMO has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system, SPLK has an overall rating of D which represents Sell.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

SUMO has a grade C for Sentiment versus SPLK’s D. SUMO also has a grade C for Stability, indicating that it is less volatile compared to SPLK, which has a grade D for Stability.

Also, of 108 stocks in the Software – Application industry, SUMO is ranked #69 and SPLK is ranked #90.

Our POWR Ratings system has also rated both SUMO and SPLK for Growth, Value, Momentum and Quality. Get all of SUMO’s ratings here. Click here to see the additional POWR Ratings for SPLK.

The Winner

Even though SUMO is a newer company than SPLK, its prospects seem to be better than SPLK based on superior financials. However, since SUMO made its market debut only on September 17, 2020, it is wise to analyze the company’s financials over a longer period before investing in its stock. Our research has shown that the growth prospects of stocks with an Overall POWR Rating of Buy or Strong Buy is much better.

So, click here to learn about stocks with a Strong Buy rating in the Software – Application industry.

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SUMO shares were trading at $36.22 per share on Friday afternoon, down $0.69 (-1.87%). Year-to-date, SUMO has gained 26.73%, versus a 3.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...