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Why Shares of Nutanix Slumped Today

By Timothy Green - Dec 17, 2018 at 4:31PM

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The cloud company got hit hard on a rough day for tech stocks.

What happened

Shares of Nutanix ( NTNX -3.55% ) were down about 12.4% at 3:30 p.m. EST Monday. There was no company-specific news affecting the hyperconverged-infrastructure company. Instead, a steep stock market sell-off seems to be the culprit.

So what

The Nasdaq Composite was down nearly 2.6% 30 minutes before market close. That decline dragged down plenty of high-flying tech stocks, including Nutanix.

A declining chart.

Image source: Getty Images.

Not helping the cause is Nutanix's optimistic valuation. The company was valued at nearly $8 billion before Monday's slump, which works out to a price-to-sales ratio of nearly 7. Nutanix is not even in the ballpark of being profitable, losing $330 million on a GAAP basis on $1.2 billion of revenue over the past 12 months.

The company's subscription business is growing quickly, with subscription revenue more than doubling on a year-over-year basis in the latest quarter. But that rapid growth hasn't saved Nutanix from the ongoing stock market sell-off.

Now what

Nutanix reported its fiscal first-quarter results in late November, beating analyst estimates for both revenue and earnings. A bounce in the stock was short-lived. Nutanix is now down about 40% from its all-time high, and there could be more pain ahead if the stock market continues to slump, regardless of the quality of the company's quarterly results.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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