Nutanix May Face Competitive Pressure Sooner Than Expected; Summitt Starts Stock At Sell

It didn’t take long for Summit Redstone to rain on the Nutanix Inc NTNX parade. Less than a month after the company’s IPO, Summit analyst Srini Nandury has initiated coverage of Nutanix at Sell.

According to Nandury, valuation and competition are the two major stumbling blocks for Nutanix.

“While we believe NTNX has an early lead, first mover advantage in Hyper-Converged Infrastructure (HCI) and high growth assumptions, we expect the growth rate to moderate quickly driven by increased competition and accompanying pricing pressure,” Nandury explains.

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The analyst points out that Gartner Inc IT already brought new competition to the market by launching Magic Quadrant just this week.

Nandury also points out that Nutanix’s stock is trading at about 5.0x estimated EV/2017 sales, while the rest of its hardware peer group is trading around 1.6x.

In the near-term, Nandury expects Nutanix to meet or beat expectations in its Q3 earnings report. However, he believes any corresponding strength in the stock should be sold.

Nandury even argues that at high take-out premium is unlikely given the large number of similar buyout targets in the market.

Summit sees more than 50 percent downside for Nutanix and has set a $16 price target for the stock.

Shares traded down 1.7 percent to around $34 in early Friday trading. The stock was down more than 4 percent in pre-market trading.