Shares of enterprise cloud platform developer and provider Nutanix, Inc. (NTNX) have gained 17.3% in price over the past month, to close yesterday’s trading session at $42.96. The stock hit its 52-week high of $44.50 on September 7, due in part to investors’ optimism surrounding its strategic collaborations.

San Jose, Calif.-based NTNX entered a strategic partnership with Red Hat on July 29 to develop a powerful solution for building, scaling, and managing cloud-native applications on-premises and in hybrid clouds. It also announced a partnership with Hewlett Packard Enterprise Company (HPE) in June 2021 to accelerate hybrid cloud and multi-cloud adoption.

NTNX was named a 2021 Gartner Peer Insights Customers’ Choice recipient for Hyperconverged Infrastructure for the third consecutive year in June 2021. However, the company’s losses increased in the fourth quarter (ended July 31, 2021). Also, the Schall Law Firm reopened the lead plaintiff process earlier this year in a class-action lawsuit against NTNX over alleged securities law violations. A lead plaintiff and a lead counsel for the case were appointed on June 10, 2021. So, its near-term prospects look uncertain.

Click here to check out our Software Industry Report for 2021

Here’s what could shape NTNX’s performance in the near term:

Broad Consumer Base

NTNX announced yesterday that leading convenience retailer EG Group has benefited immensely from integrating the Nutanix Cloud Platform across its global network. In August 2021, NTNX also helped the Royal Opera House (ROH) in London take advantage of cloud technologies, deploying its Nutanix Prism Pro and Nutanix Calm solutions.

Furthermore, Mercedes-Benz chose NTNX’s cloud platform on June 17 to digitally transform its IT infrastructure. And  Toyota Motor Corporation (TM) adopted the Nutanix cloud platform in the same month to build a virtual desktop infrastructure (VDI) environment to help run  3D CAD software. In addition, Serbian energy giant Naftna Industrija Srbije chose NTNX in May 2021 to simplify its IT management.

Mixed Financials

For its fiscal fourth quarter, ended July 31, 2021, NTNX’s annual contract value billings (ACV Billings) increased 25.9% year-over-year to $176.25 million. The company’s annual recurring revenue (ARR) increased 82.6% year-over-year to $878.73 million. And  its total revenue increased 19.2% from the same period last year to $390.72 million. However, its net loss came in at $358.18 million, representing a 93.2% year-over-year rise. Also, its loss per share increased 80.6% year-over-year to $1.68.

Poor Profitability

In terms of trailing-12-month EBITDA margin, NTNX’s negative value compares to the 14.70% industry average. Likewise, the stock’s trailing-12-month net income margin is negative, versus the 6.22% industry average. Also,  its trailing-12-month ROTC and ROTA are also negative compared to the 4.80% and 3.59% respective industry averages.

POWR Ratings Reflect Uncertainty

NTNX has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. NTNX has a C grade for Quality, consistent with its lower-than-industry profitability ratios.

The stock has a C grade for Value, which is in sync with its 5.72x and 5.84x respective forward EV/S and P/S, which are  higher than the 4.19x and 4.15x industry averages. NTNX has a C grade for Stability also, which is consistent with its 1.88 beta.

NTNX has a C grade for Growth. This is justified because  analysts expect its revenue to increase 13.9% in its fiscal year 2022 and 18.5% in 2023, but it's EPS is expected to remain negative in the current and next year. Moreover, its EPS is expected to decrease at a 38.5% rate  per annum over the next five years.

Beyond what I have stated above, we have also given NTNX grades for Sentiment and Momentum. Get all NTNX’s ratings here. Also, NTNX is ranked #55 of 147 stocks in the D-rated Software – Application industry.

Bottom Line

As  one of the popular cloud-based software companies, NTNX boasts more than 19,500 leading companies as its customers, including The Home Depot, Inc. (HD) and JetBlue Airways Corporation (JBLU). However, the stock looks overvalued now, considering its bleak earnings growth prospects. So, we think it could be wise to wait for a better entry point in the stock.

How Does Nutanix (NTNX) Stack Up Against its Peers?

While NTNX has an overall POWR Rating of C, one might want to consider investing in Software-Application stocks with an A (Strong Buy) rating, such as Commvault Systems, Inc. (CVLT), Open Text Corporation (OTEX), and National Instruments Corporation (NATI).

Click here to check out our Cloud Computing Industry Report for 2021

NTNX shares were trading at $43.31 per share on Thursday afternoon, up $0.35 (+0.81%). Year-to-date, NTNX has gained 35.90%, versus a 20.93% rise in the benchmark S&P 500 index during the same period.

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.

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