Nutanix (NASDAQ:NTNX), recently reported its second-quarter fiscal 2025 (fiscal year ends in July) results. The company outperformed analyst expectations, posting earnings of $0.56 per share and revenue of $655 million, compared to projected figures of $0.47 per share and $643 million, respectively. This strong performance was primarily driven by increased adoption of hybrid multicloud solutions. Separately, look at AppLovin Stock: Is It A Buy After A 12% Drop?
NTNX stock, with 45% returns since the beginning of 2024, has outperformed the broader S&P500 index, up 28%. This can partly be attributed to the company’s improving profitability lately. But, if you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Nutanix’s Sales Up 16% On Strong Product Demand
Nutanix’s revenue of $655 million in Q2 reflected a 16% year-over-year increase. This growth was primarily fueled by an 18% rise in product sales, while support, entitlement, and other sales increased by 13%. The company’s annual recurring revenue (ARR) grew by 19% year-over-year to $2.06 billion, and the average contract duration extended from 2.8 years to 3 years.
Nutanix also saw its adjusted operating margin expand by 270 basis points to 24.6% in Q2. The combined effect of higher revenues and margin expansion led to a 22% growth in adjusted earnings per share, reaching $0.56.
Looking forward, Nutanix expects its Q3 sales to be $625 million and operating margin to be 17.5% at the mid-point of the provided range. This is above the street expectation of $595 million in sales.
Does NTNX Stock Have Room For Growth?
Nutanix’s stock is up 15% in after-market hours, reacting positively to the Q2 results. But, volatility isn’t new for NTNX stock. The changes in NTNX stock over the recent years have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 0% in 2021, -18% in 2022, 83% in 2023, and 28% in 2024.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could NTNX face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump? After its recent rise, we think there’s little room for growth.
At its current pre-market price of $80, NTNX stock is trading at approximately 10x trailing revenues, notably higher than its three-year average P/S ratio of about 6x. While the increased valuation multiple can be justified by growing adoption of the company’s multicloud solutions and improving profitability, we believe these positive factors are already reflected in the current price. Consequently, there appears to be limited upside potential for the stock from the $80 level.
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