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Nutanix: Is There Room Left to Run?

GuruFocus.com

- By Nicholas Kitonyi

Shares of software infrastructure company Nutanix Inc. (NASDAQ:NTNX) are up more than 30% after announcing its most recent quarterly results. The San Jose, California-based company has now gained 123% since March 16, but still remains 25% off this year's pre-Covid highs.

Nutanix specializes in enterprise cloud software spread across storage, networking and platform support, among other services. It has a presence in all continents, which makes it one of the biggest players in the specific business segments of the global market that it covers.


The company has continued to invest in building strong partnerships with other technology giants to boost its growth. Last week, it announced a partnership with Intel Corp. (NASDAQ:INTC) to launch a first-of-its-kind joint innovation lab that will help the computing giant to develop more innovative products across storage, networking and computing disciplines.

Nutanix also announced earlier this month the general availability of Nutanix Clusters on Amazon.com Inc.'s (NASDAQ:AMZN) Web Services, further strengthening its partnership with the online retail giant.

Highlights from the recent quarter results

The company announced a fiscal fourth-quarter loss of 39 cents per share, which was better than the expected loss of 67 cents per share. This was also a significant improvement from a loss per share of 57 cents reported for the same period a year ago.

The company's quarterly revenue of $327.87 million topped analyst expectations by about $319.46 million after growing 9.3% from $299.88 million last year. Nutanix has now outperformed consensus revenue estimates over the last four quarters.

The company continues to reap the benefits of adopting a subscriber-based business model for revenue generation. Nutanix CEO Dheeraj Pandey said that the company has made significant progress in its transformation to the new revenue model after reporting 88% of the fourth-quarter billings from subscriptions.

"With our shift to subscription nearly complete, the guidance metrics we provide will change accordingly to reflect our business growth, namely focusing on ACV (annual contract value)," Pandey said.

Valuation

Despite the company's performance over the last 24 hours, which boosted its stock price by nearly 30%, it is 25% down year to date. As such, it is still underperforming the S&P 500, which is up more than 7% this year. The positive earnings performance could propel the share price higher in the coming quarters.

However, Nutanix will need to start turning a profit on a quarterly basis to convince more cautious investors to consider investing. Currently, it trails most of its peers in most of the comparable valuation metrics. The company's current enterprise value to sales ratio of 3.31 is higher than that of its close peers, NetApp Inc. (NASDAQ:NTAP) with 1.51 and Pure Storage Inc. (NYSE:PSTG) with 1.97. It is, however, better than VMware Inc.'s (NYSE:VMW) enterprise value to sales ratio of 5.66.

In summary, while the company appears to be underperforming the market, it is good to take note of its bottom line, which is yet to turn positive. A change to a subscription-based business model and stronger partnerships could help the company lock in steady revenue and reduce the cost of sales. The next few quarters will be interesting to watch.

Disclosure: No positions in stocks mentioned.

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This article first appeared on GuruFocus.