https://discussion.fool.com/ntnx-one-new-concern-33142512.aspx?s…
Very astute observations. I have gone back to strict rules. If the company is not clearly the dominant or disruptive force then let others invest in it.
With Nutanix I greatly opened the interpretation for those rules. Others did as well. Why? Well, it was cheap and we all thought the market misread the new business model and a great multiple expansion was upon us. Ironically, the multiple expansion increased for stocks like Zs and Mongo that were already expensive, but in the end not for Nutanix.
this is about 2 quarters before the Nutanix blow up. This is seeing things ahead. The thing that really got me back into Nutanix is that Nutanix finally took the marketshare lead (for a quarter). VMWare struck back with a vengeance last quarter. Now either the quarterly numbers were counted wrong, or something really changed from one Q to the next. I don’t know.
What I do know is that Nutanix was not clearly dominant in its category. Thus, all investing in Nutanix is speculative as it was quarter to quarter, battle to battle, against VMWare.
The warning signs observed in the above should be doubly adhered to and believed if you are investing in a company that is not clearly dominant. More likely than not ignored if you are investing in a company that is clearly dominant.
As it turns out Nutanix got destroyed last quarter in marketshare. Utterly clobbered. Another warning sign was that Nutanix was growing slower than the HCI market itself. That was mentioned, but somehow we explained it away. One should never explain away an anomaly spotted when it comes to an investment in a company that is not clearly dominant in its product category.
Just came across this post, found it worthy of a re-visit, and an example of the lesson it gives us.
As I tell my clients, “you can leave some things unsaid.” Meaning you don’t have to prove or disprove everything to win your case, just what you have to prove. In investing the same way. You don’t have to own everything. And perhaps excluding those companies that are not clearly dominant in their product category, while perhaps excluding some winners, will reduce your investment risks long-term. Particularly if the true reason you are investing in the company is because it is “cheap”.
Ironic, isn’t it. The already well multipled are the companies that ended up growing their multiple vs. the Nutanix or Nvidia or Talend. The cheap got cheaper. But another post, as well discussed elsewhere.
Tinker