Stock Analysis: How to deal with Nutanix stock in times of market turmoil

Nutanix, Inc. (NASDAQ: NTNX) is one Wall Street firm that is worst hit by the widespread selloff triggered by the COVID-19 outbreak. The market value of the cloud computing company more than halved in the past two weeks alone, even as markets across the globe crashed amid panic-selling.

Related: Nutanix Q2 2020 Earnings Conference Call Transcript

Nutanix has been in the process of shifting to a subscription-based business model. In the last quarter, the company’s subscription business accounted for about two-thirds of its total billings, reflecting the rapid progress in the transformation.

Potential Risks

Earlier, the company had cautioned about potential risks to its business from the coronavirus outbreak, though it has limited supply chain operations in China. Nevertheless, the business is bound to be impacted by the sharp fall in demand in overseas markets, especially in Asia Pacific.

Mixed Q2

In the second quarter, net loss widened from last year, despite a 3% increase in revenues. Though the results topped expectations, the management lowered its full-year guidance, disappointed by the unfavorable market conditions.

Similar concerns were raised by the other leading tech firms, including Microsoft (MSFT) and Apple (APPL), who expect the market turmoil to extend into the second quarter and weigh on their financial performance.

What Next?

Considering the temporary nature of the crisis, markets are expected to return to normalcy in the coming weeks. That means, Nutanix should be able to regain strength and restore shareholder value before the next earnings release, which is due on May 27. The cost-reduction measures adopted by the company, such as halting hiring activity, should contribute to the bottom-line.

When it comes to the stock, both existing shareholders and prospective buyers face a tricky situation, given the epidemic-driven uncertainty and the risks associated with it. While experts have assigned the stock moderate buy rating, they are quite bullish about its future. According to them, Nutanix’s market value will more than double in the coming months and bounce back to the pre-crisis levels.

Long-term Prospects

The firm’s diversification from the core business has been extensive, marked by expansion of the product portfolio and introduction of new services – something that can broaden the customer base. The management is hopeful of maintaining positive momentum in the domestic market and Europe in the near term, offsetting the epidemic-related slowdown in the other regions.

Related: Most firms think it is too early to gauge the impact of coronavirus

Nutanix’s shares closed the last trading session at $20.25, the lowest level in nearly three years. After a relatively weak 2019, the stock started the current year on a positive note, but pulled back in recent weeks. It lost about 52% in the past twelve months.

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