We think that Nutanix Inc. (NASDAQ:NTNX) currently is a better bet compared to NetApp Inc. (NASDAQ:NTAP). NTNX stock trades at 4.3x trailing revenues, higher than that of NTAP, whose P/S multiple stands at 3.3x. Does this gap in the companies’ valuations make sense? We believe it does and we only expect this gap to widen. While Nutanix’s sales weren’t hampered by the pandemic, NetApp saw a drop in sales, and revenue on an LTM basis is still below its FY ’19 level. Nutanix’s revenues have grown from $800 million in FY ’17 (Nutanix’s fiscal year ends in July) to $1.5 billion on an LTM basis. At the same time, NetApp’s sales rose from $5.5 billion in FY ’17 (NetApp’s fiscal year ends in April) to $6.1 billion in FY ’19, before dropping to $5.4 billion in FY ’20. The company’s sales currently stand at $6 billion, still lower than its pre-pandemic FY ’19 levels. For details about NTAP revenues and comparison to peers, see NetApp Inc. (NTAP) Revenue Comparison.
Having said that, we dive deeper into the comparison, which makes Nutanix a better bet than NetApp, especially at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at detailed historical revenue growth as well as operating income growth and financial position, combined with expected returns. Our dashboard NetApp vs Nutanix: Industry Competitors, But Nutanix Is A Better Bet has more details on this. Parts of the analysis are summarized below.
1. Nutanix Inc. Ahead On Revenue Growth
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Nutanix has witnessed much faster and consistent revenue growth over the years compared to NTAP. Nutanix’s sales have jumped from $800 million in FY ’17 to $1.5 billion on an LTM basis, while NTAP saw slower growth over this period, with sales rising from $5.5 billion in FY ’17 to $6 billion currently.
Additionally, Nutanix’s last three fiscal year sales growth stands at over 6%, much higher than NetApp’s -0.7%, while growth during Covid also stands higher at 5.8%, compared to NTAP’s -11.9%.
Additionally, a look at recent trends reveals that Nutanix witnessed 21% YoY sales growth for its most recent quarter (Q1 ’22), compared to NTAP’s 10.6%. Finally, LTM sales growth for Nutanix stands at 11.8%, more than NTAP’s 9.5%.
2. EBIT margins And Financial Position: Mixed Bag
NetApp’s LTM EBIT margins currently stand at 20.8%, much higher than Nutanix’s -42.2%, but NTNX is ahead in terms of LTM margin change compared to the last three fiscal years, with 10.9% growth vs NetApp’s 2.3%.
Additionally, Nutanix’s debt as a % of equity stands at 20.1% currently, more than NetApp’s 13%. But NetApp is ahead in terms of cash as a % of assets, with 56.6%, higher than NetApp’s 49.3%.
For additional details about Nutanix’s historical returns and comparison to peers, see Nutanix (NTNX) Stock Return.
3. Finally, Nutanix Is Ahead In Terms Of Expected Returns
Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Nutanix currently is the better choice. Nutanix’s LTM revenues of $1.5 billion are expected to rise at a CAGR of 6% as per our estimates, taking revenue numbers three years out to $1.7 billion. Assuming Nutanix’s P/S ratio to rise marginally to 4.6x, this means that the market cap would rise to $8 billion, an upside of almost 30% over three years.
In comparison, given historical trends, we expect NetApp’s sales to rise slower at a CAGR of just 1.9%, taking revenue in three years to a little under $6.4 billion. However, considering the P/S for NTAP to pull back to an average level of 2.8x, we estimate the market cap to drop to $18 billion, a downside of 11% from current levels.
The Net of It All
While NetApp’s sales stand much higher than that of Nutanix, the latter has seen faster and more consistent revenue growth over the years, but still has negative margins. Having said that, our comparison of the post-Covid recovery above, shows that Nutanix has shown stronger sales growth and margin recovery recently, and we believe profitability will catch up soon enough. Due to this, we believe that Nutanix deserves its higher P/S multiple, and we expect the gap between the two companies’ valuations to increase further. As such, we believe that Nutanix stock is currently a better bet compared to NetApp stock.
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|S&P 500 Return||-1%||-1%||111%|
|Trefis MS Portfolio Return||-7%||-7%||265%|
 Month-to-date and year-to-date as of 1/14/2022
 Cumulative total returns since the end of 2016