Solved that problem in 4 seconds with a Google search after wasting time at FedEx store and Home Depot. Convert PDF to TXT, all over the internet, but not at these copy shops. Oh well, moving on…
In re: Nutanix.
Nutanix is a recent IPO so the two rules I discuss below may be less applicable than with a stock of more age, but NTNX is past its lock up stage, and more likely than not will be applicable nonetheless.
In investing I have learned two rules:
Rule (1) in a bull market,inevitably you will start moving from higher quality companies to lower quality companies because the higher quality companies share prices create less apparent upside due to valuation, and sometimes because the growth slows down from what it was. So lo and behold, and it happens every time, you start looking for overlooked gems. Without realizing that there is no such thing as “overlooked” in the stock market. Do not fool yourself, there just is not.
This new stock you look at will be shiny, building a brilliant visionary future, it will be built on the back of rapid revenue growth, selling for less than the multiple it should be sellling for, and has a brilliant story. However, there is always a reason such a fine gem of a company has failed to rise with the higher quality companies in a bull market. That reason is not because it has been “overlooked”. That is a loser’s game generally speaking.
Rule (2): you cannot beat Wall Street by using better financial analysis. Do not even try. Rule of thumb is sufficient combined with cash flow analysis, and sometime sin the simple you can see things that the bean counters dismissed as it was too simple, but the more elaborate you get, the less and less likely that you know something more than Wall Street when it comes to the numbers. You just do not and that is a losers game generally speaking.
Now we have Nutanix. Clearly it has market momentum, and has built out a strategic and enviable position that distinguishes it from the usual also rans. This makes it a candidate for the rare exception to the above two rules, but only a candidate.
Why was it overlooked? Why is it not valued as it should be? Why did it not rise with the rest of the cream of the crop in the bull market?
If you can come up with qualitative reasons that are not readily apparent and simple for Wall Street to calculate on a slide rule, then you have a place to start and examine. Because as said above, you will not beat Wall Street with your slide rule, even with a better slide rule.
I have done more digging into Nutanix than any person on any board within the Fool community, I can almost guarantee it. More threads than even Duma can link to I suspect. And there is a lot, an awful lot to like about Nutanix. Without question.
However, what still gives me pause is how many times an issue with Nutanix is brought up and there is a quick rationalization to account for what could be a serious issue. Always an excuse. Sometimes the reasons are valid, but mostly we are trying to make the company into what we want it to be rather than what it is.
What it is, is a company that is probably valued at less than an acquirer would buy it for. Making it a lower risk possible high return stock. What it is, is also a company with an excellent product, with momentum going in to the fortune 2000, and with the land and grab strategy these new larger clients are likely to continue to buy more and increase growth.
However, what it is not is a company with any current way to print cash in the future. A company with switching costs that at this point appear to be somewhat lower than you would expect and therefore cannot raise prices in the future. A company that has no recurring revenue and must sell most of its product through extremely low margin appliances, appliances that we allocate a share of software vs. hardware to.
However, we have no idea what Nutanix charges for software to OEMs and customers. Do you think they ar paying 70% of the total product price on Nutanix software? Really? That would be interesting to know. Because that is the real value of the software component for each box that goes out.
I still have my hesitations in regard. I have owned too many companies like this, later in a bull market, that look so good, only to have them eventually whither when the market turns even slightly because in the end they had no ability to print money.
I bring this up because these rules are quite real and true. Nutanix fits them. On the other hand Nutanix also does not fit them, as Nutanix has real business that appears to be higher quality than the typical company of this ilk.
So why is it selling so “cheap”? Why is it “overlooked”? What FUD exists so we can be confident, that despite the bull market, Wall Street has really got this company wrong?
Tinker