Nutanix shares fall 22% on mixed earnings report

Despite strong earnings, Nutanix’s revenue forecasts disappointed investors and the stock price fell. Is the stock worth buying after such a sharp price correction?

Shares Nutanix (NTNX -23.05%) fell on Thursday after the company announced its third-quarter business results. The hybrid cloud computing expert derailed Wall Street’s consensus earnings target, but its fourth-quarter outlook was below current expectations. As of 3 p.m. EST, Nutanix shares are down 22%.

Nutanix results and tips

In the third quarter, Nutanix sales increased 17% year over year to $524.5 million. Adjusted earnings increased from $0.04 to $0.28 per diluted share. The average analyst would settle for earnings of about $0.16 per share on revenues of $517 million.

Looking ahead, Nutanix management set the upper end of its fourth-quarter revenue guidance at $540 million, well below the Street forecast of $546.

Many Nutanix investors wanted to see a completely flawless report – the company’s stock had gained 149% in the 52 weeks leading up to the third quarter update. Strong results coupled with disappointing revenue forecasts weren’t good enough, so Nutanix shares took an immediate hit.

This price adjustment was likely overdue

The market reaction may seem harsh, but I think it’s actually a healthy move.

Even after the sharp drop in price, Nutanix stock is still not cheap. Shares are changing hands at 49 times adjusted earnings, which is a bit high for a company with annual revenue growth of less than 20%.

The company is playing an active role in the artificial intelligence (AI) boom, signing AI partnerships and winning contracts to manage cloud-based AI systems left and right. However, lucrative AI deals take longer because Nutanix is dealing with a larger and often more bureaucratic class of potential customers. The contracts negotiated today could deliver game-changing revenue streams in 2025 and beyond without improving Nutanix’s near-term results.

So the company’s stock could be a solid buy today, with the caveat that there could be further price corrections after the next few earnings reports. You can buy Nutanix stock in three parts, mitigating the effects of unpredictable volatility.