Nutanix Inc (NASDAQ:NTNX) is set to report its Q4 earnings on August 31. Is NTNX stock set for another post earnings pop?
San Jose, California-based Hyperconverged infrastructure provider Nutanix Inc (NASDAQ:NTNX) is scheduled to report its fiscal fourth quarter earnings this week, after market close on the 31st of August. Trading action at the NTNX counter has been very uncharacteristic, with the decrease in volatility in the lead up to the earnings announcement. Further, the stock has also registered a minor uptick of more than 2% in the last few trading sessions. Nutanix stock has shot up after the company's Q3 earnings on May 25, gaining over 26% since then, outperforming the Nasdaq Composite (INDEX:COMPX) by a factor of 13 in the same time frame. The bullish rating by Goldman Sachs last month has also contributed significantly to the stock's revival after the massive underperformance at the beginning of the year. Investors are also upbeat after a strong guidance from the company at the last earnings call. So, is Nutanix stock setting up for a strong post earnings rally?
Nutanix Q4-2017 Earnings Wall Street Estimates.
The current Wall Street consensus expects the Dheeraj Pandey led HCI provider to report non-GAAP loss per share of 38 cents a share, marginally better than loss per share of 39 cents in Q4 2016, a 2.5% YoY growth. On the top line front, Wall street analysts expect the company to report revenue of $218.05 million, good for a 56% year-over-year growth. The wall street estimate is slightly above the midpoint of the management guidance, issued during the last quarterly earnings release. As per the management guidance, Nutanix revenue in Q4 is expected to come in a revenue range of $215 million to $220 million, translating to YoY growth of 53.79% at the lower end and 57.36% at the higher end.
Nutanix Earnings History And Earnings Whisper.
This is just the fourth earnings release since the company went public. In its short earnings history, the company has beaten the Wall Street estimates in all its earnings releases. The company has a strong record of beating revenue estimates and also the high end of the guidance. Nutanix has trumped the high end of its own revenue guidance in all the quarters. The strong earnings history implies that Nutanix could be in for yet another earnings beat. However, NTNX stock will need more than a beat in Q4 for a post earnings pop and the revenue growth needs to be strong in the future.
The case for an earnings beat is also supported by the current Nutanix Q4 earnings whisper number, which is currently at a loss per share of 34 cents, implying a 4 cent beat. NTNX stock is known to make big moves either ways following the earnings announcement, so the FY 2018 outlook is very crucial to the stock's fortunes. This can be further emphasized by how the stock reacted on Q3 and Q4 guidance in the earnings call of the second and third quarter. The stock fell by 26% after a below par Q3 guidance and it popped by more than 12% on a better than expected Q4 guidance.
Other key factors to consider before earnings.
Another crucial metric to monitor ahead of earnings is the short interest in NTNX stock. The latest reported Short interest numbers indicate that there has been a 3.5% increase in short interest of Nutanix as of August 15. It is also important to note that a massive 22.5% of the float represents shorted shares. The days to cover all short positions is also very high at 6 days. Any positive earnings result or a much improved future outlook could send the stock much higher which in turn could give rise to a short squeeze.
The technical outlook ahead of the earnings suggests some major signals. Firstly, Nutanix shares face a major resistance level from the long-term 200-day SMA which stands at 23.25, just a few levels above the last close. The stock has not been able to break above the resistance till now. A break out above the resistance level on strong volumes could set the tone for another post earnings rally. Secondly, the stock is seeing a Bollinger Band squeeze. It can be identified by recent fall in volatility and narrowing Bollinger Bands. Generally, in technical parlance, narrowing of the bands can imply a significant advance or decline. According to Stockcharts, "Once the squeeze play is on, a subsequent band break signal the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band." In Nutanix's case, the share price is also very close to break above the upper band. Investors should closely watch charts to make the most of the condition. However, they should also be cautious enough to avoid the Head Fake.
Should you buy Nutanix stock ahead of Q4 earnings?
Nutanix stock has an average price target of $27.20, which implies near 23 % upside from yesterday's close. Simona Jankowski of Goldman Sachs had recently called Nutanix a "once-in-a-decade tech infrastructure story" when they moved the stock into their conviction list in July. The company promises a potential of a high growth company. The technical outlook and the short squeeze probability are in favor of the stock. While the current earnings whisper number implies an earnings beat is on the cards, just an earnings beat will not be enough to propel NTNX stock higher. The company needs to convince investors that its future growth trajectory is strong and losses are narrowing. Given that analysts don't see the company becoming profitable even by 2018 end, the investment in Nutanix has its own risks. Considering the stock's past post earnings behavior, Nutanix is a high-risk/ high-reward bet going into the earnings. Any disappointment on the earnings front and future outlook could send the stock again into a downward spell. Nutanix stock will certainly need something more than a beat in Q4 to continue its resurgence.
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