One Analyst Thinks Nutanix Is Undervalued Despite Growing Faster Than Peers

JMP Securities analyst Erik Suppiger thinks Nutanix Inc NTNX shares, which are trading at 2.3 times his calendar year 2018 estimate, are undervalued. Since its listing last September, the stock has shed 43 percent.

As such, Suppier maintained his Market Perform rating and $35 price target on Nutanix. The analyst clarified that his price target represented 4.3 times his estimated sales for calendar year 2018, a slight discount to peers even as the company is growing 22 percent faster than peers.

The view was expressed in the wake of the company adopting the new standards around software license revenue recognition, one of the first in the technology sector to do so.

See Also: Nutanix-Google Deal Has Analysts Wondering If Estimates For 2018 Are Too Conservative

JMP Securities stated that Nutanix restated its financial statements in accordance with accounting rule ASC 606. This, according to the firm, would change the revenue recognition methodology and in turn the earnings, although not materially impacting billings or cash flows. The change doesn't alter the fundamentals.

The ASC 606: Revenue From Contracts With Customers rule is an accounting standard issued by the Financial Accounting Standards Board, or FASB. Public companies reporting under US GAAP are required to adopt this standard latest by the quarter beginning in January 2018.

As against the current diverse methods companies adopt to recognize revenues, the new standard serves to standardize the revenue recognition method by mandating that revenues be recognized when goods and services are transferred to the customer, in an amount that is proportionate to what has been delivered at that point.