Nutanix has been treading water for the past six months, recording a small loss of 3.4% while holding steady at $48.52. The stock also fell short of the S&P 500’s 12.4% gain during that period.
Is now the time to buy Nutanix, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Nutanix Not Exciting?
We don’t have much confidence in Nutanix. Here are three reasons why NTNX doesn’t excite us, plus one stock we’d rather own.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Nutanix’s billings came in at $812.9 million in Q1, and over the last four quarters, its year-on-year growth averaged 13.5%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Nutanix’s revenue to rise by 12.9%, a slight deceleration versus its 15.6% annualized growth for the past five years. This projection doesn’t excite us and suggests its products and services will see some demand headwinds.
3. Operating Margin Rising, Profits Up
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Looking at the trend in its profitability, Nutanix’s operating margin rose by 3.2 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 8.6%.
Final Judgment
Nutanix isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 4.6× forward price-to-sales (or $48.52 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Nutanix
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