Why Nutanix Could Keep Falling

Nutanix (NASDAQ:NTNX) continued its one-year downtrend when its Q3 results missed revenue estimates. It also forecasts revenue below consensus and expects a loss in the fourth quarter. The downbeat guidance will continue hurting NTNX stock, while potentially creating an entry point for investors betting on a turnaround.

Fundamentally, Nutanix has just one strong offering: HCI (hyper-converged infrastructure). And when better-known companies like VMWare (NYSE:VMW), Microsoft (NASDAQ:MSFT), and Amazon.com (NASDAQ:AMZN) offer reliable cloud computing solutions, Nutanix must spend more effort in getting noticed from potential customers. The falling market share for Nutanix is a big risk factor that will hurt its turnaround efforts.

Nutanix does not have a favorable balance sheet, either. It has a debt/equity of ~1.5 times, which is unfavorable when compared to Microsoft, Amazon, or VMWare.

At four times sales, the stock is not cheap, either. Still, Nutanix managed to increase gross profit from $198 million last year to $222 million in the third quarter. Though the company’s core business is still sound, quarterly losses despite growing revenue should concern investors.

Transitioning towards a subscription-based model will hurt results in the coming quarters. It remains to be seen if management succeeds in moving its customers to this pricing model while growing its user base. If it does both, then the stock will recover.