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Why Nutanix, Inc. Shares Dropped Today

By Evan Niu, CFA – Oct 4, 2016 at 3:34PM

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For freshly public companies, volatility is the name of the game.

Nutanix went public on Friday, and it's already had a wild ride. Image source: Nutanix.

What happened

Shares of newly public Nutanix, Inc. (NTNX -3.27%) are off to a volatile start, with the stock down 10% as of 2:40 p.m. EDT as the company continues to test the waters with public investors.

So what

There's no fundamental news or change that's driving today's movement, but this type of volatility is not unheard of immediately following an IPO. That's especially true for young tech companies from Silicon Valley, which are known for fluidity. Nutanix, which offers an enterprise cloud platform that integrates servers, virtualization, and cloud storage, went public on Friday.

This is the third trading day so far, and shares had jumped 20% yesterday as the momentum of the IPO glow carried over into the new week. That was after shares closed out the first day of trading with a 131% gain relative to the $16 offering price. After the couple of days it's had, it's not unexpected for shares to give back some ground as the honeymoon period fades.

Now what

Prior to Nutanix's IPO, there had been a drought of tech IPOs over the past 18 months or so. Nutanix had even delayed its IPO by nine months since market conditions did not appear receptive. But now that the company has gone public, other companies that aspire to go public (or at very least, have private investors that want a payday) will be watching and gauging the market's appetite. Nutanix isn't cheap by any measure. It is unprofitable and trades at 13.6 times sales, although for now it can justify that valuation with strong growth in both revenue and billings.

In general, all companies that go public experience extreme volatility in the first few months, which is why IPO investing is inherently speculative. The market needs time to get acquainted and price discovery takes time, too. Don't expect the volatility to subside for a while.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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