Nutanix, Inc.'s (NASDAQ:NTNX) 35% Share Price Plunge Could Signal Some Risk

Unfortunately for some shareholders, the Nutanix, Inc. (NASDAQ:NTNX) share price has dived 35% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

Even after such a large drop in price, it's still not a stretch to say that Nutanix's price-to-sales (or "P/S") ratio of 4.9x right now seems quite "middle-of-the-road" compared to the Software industry in the United States, where the median P/S ratio is around 5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Nutanix

What Does Nutanix's Recent Performance Look Like?

Recent times haven't been great for Nutanix as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Nutanix's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Nutanix?

In order to justify its P/S ratio, Nutanix would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. Pleasingly, revenue has also lifted 60% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 13% over the next year. That's shaping up to be materially lower than the 22% growth forecast for the broader industry.

With this information, we find it interesting that Nutanix is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Nutanix's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Nutanix's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Nutanix (1 is significant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Nutanix, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.