A Nutanix Bull Explains What The Street May Be Misunderstanding

Nutanix Inc NTNX, a provider of an operating system that converges silos of servers, virtualization and storage into an integrated solution, saw its stock soar more than 100 percent during its first day of trading in 2016 and closed the day at $37. The stock hasn't traded near this level since then, which prompted at least one analyst to claim the company is being misunderstood. 

The Analyst

Needham's Jack Andrews initiated coverage of Nutanix's stock with a Buy rating and $45 price target.

The Thesis

Nutanix is uniquely positioned to deliver a "disruptive product that solves customer pain points," Andrews said in the iWednesday note. (See Andrews' track record here.)

The company was founded in 2009 with the objective of providing all enterprises with "Google-like (or web scale) data centers" without the "headaches involved" in scaling and maintaining the data center, Andrew said. Nutanix's 68 percent revenue growth rate in fiscal 2017 shows the company should be able to at the very least sustain a growth rate that is "well above" its peers for the foreseeable future, the analyst said. 

Perhaps more important to the case for owning Nutanix's stock is recognizing where the bears are wrong, the analyst asaid.

Nutanix bears are saying the company is a "commodity hardware player" instead of Andrews' preferred description: "a next generation data center operating systems company."

Nutanix has "significant longer term upside" if investors view Nutanix as a pure-play software name, Andrews said, "which we believe is likely given the true value proposition of its product portfolio and vision."

Price Action

Shares of Nutanix were trading higher by more than 6 percent Wednesday morning but still down more than 12 percent since its IPO.

Related Links:

Wells Fargo: Nutanix Valuation Could Become 'Even More Compelling'

Analyst: 4 Reasons Why Nutanix Market Trends Are Stable