Nutanix (NASDAQ:NTNX), a leading company in cloud software will report its third-quarter FY2022 financial results on May 25.
Shares of Nutanix closed at $20.61 on May 12 with losses of nearly 36% in 2022. Is NTNX stock now a ‘Buy’ ahead of its earnings? There are two answers to choose from. One is the fact that technology stocks have been beaten down and Nutanix stock is no exception, so a bounce could be on the horizon. This approach is based mostly on technical analysis searching for oversold stocks.
The second approach, my preferred one is the fundamental analysis, and four main arguments are presented that make NTNX stock a clear ‘Sell’ now. Starting with the good news first, Nutanix has a history of beating EPS estimates.
Over the past eight consecutive quarters, Nutanix has reported a beat on all EPS estimates, which is impressive. On the flip side, these EPS figures have been negative. Therefore, the first argument to build a bearish view is that the company is unprofitable.
The second negative factor is that net losses have widened significantly over the past three consecutive fiscal years. In fiscal years 2019, 2020 and 2021 Nutanix reported a net loss of -$621.18 million, -$872.88 million, and -$1.03 billion respectively.
Sales growth after the surge of 36.59% in the fiscal year 2018 has stabilized in a range of 5.79% -6.98% over the past three consecutive fiscal years, therefore Nutanix is not a high-growth technology company.
Continuing with the negative factors, Nutanix shareholders have been diluted in the past year, with total shares outstanding growing by 8%.
Any stock dilution is negative for the intrinsic value of the stock. There is one red flag that is hard to ignore, a negative shareholder’s equity. Total equity for FY 2021 was -$1.01 billion.
The company has been accumulating negative retained earnings as of 2017. At this point, these factors should be enough to justify a bearish view on NTNX stock. Digging more another two factors that are alarming can easily be found.
There is a growing long-term debt trend and a cash burn problem for the three past consecutive fiscal years. Generating positive free cash flow is essential for Nutanix to pay off its debt and continue its business operations and this is not happening.
Expect high volatility for shares of Nutanix after the earnings release. Considering the poor fundamental analysis Nutanix stock is not attractive now.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.