Nutanix (NTNX) Stock an Under-the-Radar Buy in Pandemic Times

Enterprise cloud virtualization platform Nutanix (NASDAQ: NTNX) was one of the first “unicorn” technology IPOs since the financial crisis. Shares have been on a rollercoaster ride since debuting in late 2016 hitting a range of $14 to $64 before stagnation set in. The proverbial “nail in the coffin” was the earnings guide down followed by the impacts of COVID-19 plunged shares to all-time lows of $11.31 on March 17^th, 2020 before a dead cat bounce peaked at $19.69. The company continues to transition into a platform company adopting a subscription model is growing at 45% year-over-year (YoY). Nutanix should see improvement during these pandemic times as an aggregator of remote workflow efficiency. Investors may be overlooking the potential upside creating an under-the-radar buying opportunity at key levels.

Pandemic Times

With over 100 million people under lockdown with stay-at-home orders, the work and learn from home phenomenon has bolstered the top line for companies and services accommodating this trend. Services and products that optimize remote workflows and enhance productivity should benefit in pandemic times. Video conferencing, virtualization, streaming, and bolstering bandwidth and storage capacity. Nutanix enables seamless and scalable compatibility on a single hyperconverged platform. Browser-based virtual desktops accessed through enterprise cloud bolster efficiencies from Universities to hospitals to financial services. Nutanix solutions are conducive to optimizing efficiencies, especially in pandemic times with one platform, any app, and any location.

Q2 Fiscal Year 2020 Earnings Results

Nutanix released its Q2 2020 earnings on Feb. 26^th beating consensus analyst estimates by $0.09 with a loss of (-$0.60) versus (-$0.69) EPS. Revenues grew 3.4% YoY with non-GAAP gross margins improving to 80%. Total YoY customer growth was 28% with 76% repeat bookings and large customer growth (above $10 in lifetime bookings) of 59% YoY. The company forecasts downside guidance for Q3 of (-$0.89) EPS versus (-$0.74) consensus estimates causing shares to gap down from $32.63 to $24.43. The bar was set low and continued lower as the spread of COVID-19 continued to slam the S&P 500 (NYSEARCA: SPY) by (-35%) off the highs.

Shaping the Narrative

Nutanix is in the transitioning process to a platform company integrating a subscription model since Q1 2019. The transition is occurring “faster than expected” with large enterprise business flourishing over the previous 18 months. Growth in EMEA is accelerating as the company has 880 of the Global 2000 as customers in addition to 70 of the Forbes Global 100 and 8 of the Forbes Global 10 companies. Government agencies are embracing the subscription model without friction. Data and call center infrastructure modernization and improvement continue to drive subscription licenses globally. Private cloud accelerates the transition from legacy hardware and perpetual license software to true web scale software-defined infrastructure anchored and driven by subscription licensing. The partnership with Hewlett Packard Enterprises (NYSE: HPE) has resulted in a multitude of new commercial mid-market customers implementing Nutanix software in HPE servers, as Nutanix gained 920 new customers in Q2 2020 brings total customer count to 15,880. The goal is to drive subscription billing to 100% of total billings. The average subscription term length was 3.9 years including renewals.  

Opportunistic Entry Levels

Using the rifle charts on wider time frames to lay out the playing field is suitable for swing traders and investors. The daily market structure low (MSL) buy trigger above the $13.43. Incidentally, a second higher MSL triggered above $16.20, which could set up a seed wave on a breakout through the prior MSH just below the $19.98 Fibonacci (fib) level. If triggered, then upside targets sit at the 1.27, 1.414 and 1.618 fibs in pink ($21.90, $23.03 and $24.82 respectively). The daily Bollinger Bands (BBs) are starting a compression phase. If the daily stochastic oscillators cross back down, it sets up some opportunistic entry levels at $13.43 MSL trigger, $12.43 sticky 2.50s zone/fib and $9.60 sticky 5’s zone/fib.  Traders can use these and in-between fib levels to scalp reversions utilizing intraday time frames. Swing traders can scale for overnight to multi-day holds on converging daily/60-minute stochastic. Longer-term investors may consider a pyramid sizing dollar-cost averaging approach with a covered call strategy to buffer downdrafts.