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Nutanix: Fundamentals Driving Optimism

Mar. 06, 2018 12:32 PM ETNutanix, Inc. (NTNX)26 Comments
Josh Rudnik profile picture
Josh Rudnik


  • NTNX is breaking out higher.
  • Its top-line growth is impressive.
  • I am buying stock in the name.

Nutanix (NASDAQ:NTNX) is trending strongly higher on solid fundamental support. The stock recently broke out to near record levels after months of consolidation. NTNX is showing strong top-line growth, while its also attempts to reverse its earnings per share losses. Additionally, the company continues to invest in acquisitions, and push along its innovative product solutions to drive future growth. I am buying stock in the name with a stop-loss point below previous resistance levels.

Price Action

I am buying shares of NTNX as its fundamental story leads investors to push it above key resistance levels. On both its short- and long-term charts, the company is breaking out higher. The monthly chart shows a breakout to near record levels above $42. The company has only been public since 2016, but has formed a strong base formation which it is now breaking higher out of.

On its shorter-term charts, its recent consolidation is giving way to buying support. From late 2017, to late last week, the company's share price had held below $38.5. Today's breakout however, was significant, with investors pushing the stock nearly 8% higher on the day. Strong fundamental support is backing the move higher, which gives me confidence in adding a long stock position. I am using a stop-loss point of $37.5 should investor sentiment wane, leading to selling pressure.

Source: Trading View

Fundamental Narrative

NTNX is seeing improved investor optimism as it grows at a strong pace, while also investing in innovative new technologies and acquisitions. In the most recent quarter, the company saw strong deal momentum. Specifically, their move towards a software-defined business model has helped them accelerate their large deal flow.

The company provides an enterprise cloud operating system in North America, Europe, the Asia-Pacific, the Middle East, Latin America, and Africa. Its cloud operating system converges traditional silos of server, virtualization, storage, and networking

This article was written by

Josh Rudnik profile picture
I am currently a portfolio manager at an RIA in Philadelphia with over $1 billion in assets. The portfolio is dedicated towards macro themed positioning with equities, ETFs, fixed income, as well as options and other alternatives. There are opportunities everywhere, both on the long and short side, and I aim to generate absolute returns on an annualized basis for clients. My absolute return portfolio has returned double-digit percentage returns over the last decade regardless of if the market is selling off, or rallying higher with enthusiasm. Relative returns are nice, but at the end of the day, you can't eat relative returns. When the S&P 500 is down 20%, it doesn't necessarily mean you have to be down too. Join my Marketplace service, Absolute Returns, and see how I am positioning my portfolio in real-time, and what trade ideas are coming about daily. I also offer a live chat as part of the service, where questions and ideas can be discussed.

Analyst’s Disclosure: I am/we are long NTNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (26)

Some people claim to work in this space? Yet their profile says retired! Got to love it.
Your right. VMware can squash NTNX whenever they feel like it . Whenever they get in the mood. They just haven't yet cause they weren't interested and didn't want the business.
I better sell my all 5000 shares I bought between 16 and 19 this past summer.
Someone's smoking crack. I wonder whom?
07 Mar. 2018
5 weeks ago I said to someone here wait until you see the stock price after next CC as they were saying the stock price was overvalued. That time the price was around €30 and i felt it was a good time to buy but now that its up 50% in 5 weeks...
Cracker 1 profile picture
You are right. I got out of most of my position slightly above $30 because that was a 100% return in a few months. Then it kept running, and it has run too far. $7bil market cap is getting ahead of itself. The SW-only transition is still, in transition. There can be a lot of missteps over the next few quarters, trust me. Every single sales person I know has left and every sales manager in the channel has told me a few reps are killing it, and 80% of reps are at 20% of their quota each quarter. You can't keep growing at these rates with pi##ed-off, morale ridden, salesforce. Those people can easily go to Dell, whose HCI business is already 2x the revenue of Nutanix, fyi.
flatsixdude profile picture
One issue is that whether or not your colored view of the morale within the company (based on hearsay) has skewed your assessment of business realities, explosive revenue and earnings growth matter. That is also what gets the attention of investors and potential suitors - not the fact they are being beaten in the market...resulting in everybody getting pissed off as you claim. Jimmy Johnson won 7 Championships and until someone went out and beat him on the track everyone was pissed off.
Cracker 1 profile picture
Excuse me? hearsay? The company has recruited me various times and I know people at the company. they've had massive turnover in sales and morale is low. Fact. Wake up dude.
You have to love a comment that tells you that a company Ntnx is overvalued and you should sell! Then tells you they are going to short the stock! That they know the future of the companies growth?? So short away.
Cracker 1 profile picture
Dude, I got long the IPO, then shorted it and I was right. I got long at $15 and I was right and when I short when I short I'll probably be right again. you're absolutely right. You have to love me.
Then you are the only invester in this market that i know of that times everything perfectly. I have heard the same comments from others about SQ. They were saying it was overvalued at 29. and to sell and short it. Since then its gone to 51.
Cracker 1 profile picture
I make plenty of bad trades. Not this one though. I have way too much visibility on this name as I work in the space.
Cracker 1 profile picture
Sorry guys. I got long at $15 and I still have 30% of my original position. Sadly, there is too much optimism at these levels, a $7bil market cap. There will be stumbling blocks ahead for these guys and we can't all be blind bulls assuming they will just continue their trajectory like VMware did. They have upset too many server competitors and too many storage competitors. They can say "VMware is our competitor" all they want, but they have pi##ed off way too many would-be partners on their growth blaze. VMware on the other hand, has not pi##ed of these would-be partners of Nutanix. In fact, all of the server and storage companies they upset, are all very strong VMware partners. I get that customers want to reduce ESX licensing and that they use Nutanix as the stick, or the replacement. Don't come at me with a bunch of junior arguments because I do this for a living and I know this space well. You can't just assume growth and do TAM % and arrive at a valuation multiple. Sorry. If it were that easy, we would all be millionaires (yes, I am talking to you others because I am one already).

Nutanix is rich at a $7bil market cap until their SW-only story really starts to accelerate much more rapidly. They are struggling to pick up the server and storage partners that VMware has had in their back pocket for many years. This is not shifting yet guys. Don't get ahead of yourselves writing articles about how this is a great time to buy in. It isn't. This stock can trade right back below $30 in no time, and will do so as they will slip execution in one of the next few quarters. 20% of their sales team is at their quota right now. Trust me. This is fact. That will catch up with them eventually. Dell/EMC's HCI revenue is already 2x that of Nutanix gang. Wake up to that fact. Also wake up to the fact that Dell owns a large majority of VMware through their EMC acquisition.

I will leave you all with this.

Anyone familiar with RedHat? They basically make all of their revenue on support and services of Enterprise Linux. What is at the core of Nutanix and their so called special sauce??? Well, it is the linux kernel virtual manager, KVM.

VMware could absolutely re-distribute most of what Nutanix just did, since it is mostly GPL-bound due to it being written on top of KVM. VMware could come out with a new KVM distro, compete directly with Nutanix where they want to, and do a support and services model just like RedHat does for Enterprise Linux. You don't think that will happen? It can easily happen when they feel like squashing Nutanix at some point. It just hasn't happend yet because Nutanix is not big yet.

So gang, understand what you buy before you buy and don't treat current technology trends as if they will be the future technology trends. VMware still has massive ecosystem critical mass and they could quell a lot of this Nutanix noise when they feel like it.

And no, nobody is going to pay a premium above $7bil for NTNX. They don't have enough revenue and their GTM is very much in transition. There is too much risk there.

In summary, if you understand what I explained above, the risk is to the downside over the next 12 months. I would start to be short around these levels and not enter into a new long position.

Good luck.
Dear Cracker 1 - FYI BofML just raised their price target to $60 from $45 this morning - 3/09/18.
Cracker 1 profile picture
Great news. I am long $50,000 of this stock still. I appreciate the update.

Near $60, I am going to short the hell out of this because it will head right back to $30. Watch and learn.
$60 by May 5th, and then sell 1/2 the position.
Andrew McKeown profile picture
There was an interesting research report written up by Merrill Lynch at the IPO that talked about Nutanix getting to an 11% market share of the private cloud, similar to VMWare in their business. They calculated the TAM at around 130 billion right now. This puts them in the 13-14 billion revenue and assuming it’s all software, take a 10x multiple on it at that time. 150 billion market cap versus 7 billion today.
I am always impressed how strong the growth of companies like Nutanix or other IT companies such as ServiceNow, Atlassian, New Relic, Alteryx, Coupa Software etc is...IT, Software, tech are the real winner in our time.
Long term this company can reach up to and go beyond the market cap of VMWare.
How far can we go (short term) ?
Josh Rudnik profile picture
Article was first drafted 3/02. I think this is one to buy and hold, don't try to guess upside targets.
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