VMware vs. Nutanix: Which Stock is a Better Buy?
Because the software industry is booming with continued digital transformation and hybrid activities, prominent companies in this space, VMware (VMW) and Nutanix (NTNX), should witness increasing demand for their solutions....
Because the software industry is booming with continued digital transformation and hybrid activities, prominent companies in this space, VMware (VMW) and Nutanix (NTNX), should witness increasing demand for their solutions. But which of these two stocks is a better buy now? Read on to learn our view.
As one of the leading companies in the cloud infrastructure space, VMware, Inc. (VMW) in Palo Alto, Calif., provides software in hybrid and multi-cloud, modern applications, networking, security, and digital workspaces internationally. In comparison, Nutanix, Inc. (NTNX) in San Jose, Calif., provides an enterprise cloud platform. The company offers Acropolis converged virtualization, enterprise storage services, networking visualization, and security services; and Acropolis Hypervisor, an enterprise-grade virtualization solution.
Most software stocks have soared in price over the past year because the remote lifestyle has required individuals and businesses to depend heavily on software, mainly cloud-based services. The trend has been continuing this year, with the increasing adoption of advanced software in almost every industry as part of their digital transformation efforts. And according to Grand View Research, the global business software and services market is expected to grow at an 11% CAGR of 11.3% through 2028. Therefore, both VMW and NTNX should benefit.
VMW stock has gained 1.9% in price over the past three months, while NTNX has negative returns. Also, VMW's 3.2% gains year-to-date compare with NTNX's negative returns.
But which of these two stocks is a better buy now? Let's find out.
On Feb. 24, 2022, Zane Rowe, executive vice president and CFO of VMW, said, "As we look to our next fiscal year, we remain focused on accelerating the growth of our Subscription & SaaS portfolio and scaling our multi-cloud platform, enabling us to deliver long-term revenue and profit growth."
On Feb. 15, 2022, NTNX announced the global availability of its simplified product portfolio to align with rapidly evolving customer requirements. The Nutanix Cloud Platform delivers a consistent operating model across public, private, and hybrid types of clouds. With this launch, the company has further streamlined customers' digital transformations by delivering an easy-to-consume set of solutions.
Recent Financial Results
VMW's revenue increased 18% year-over-year to $3.53 billion for its fiscal fourth quarter, ended Jan. 28, 2022. However, its non-GAAP operating income came in flat at $1.14 billion, while its non-GAAP net income was $855 million representing an 8.7% year-over-year decline. Also, its non-GAAP EPS was $2.02, down 8.6% year-over-year.
NTNX's revenues have increased 19.3% year-over-year to $413.08 million for its fiscal second quarter, ended Jan. 31, 2022. The company's operating loss declined 39.6% year-over-year to $94.42 million, while its net loss came in at $115.06 million, representing a 60% year-over-year decrease. Also, its loss per share was $0.53, down 62.7% year-over-year.
Past and Expected Financial Performance
VMW's revenue and total assets have grown at CAGRs of 10.2% and 17.7%, respectively, over the past three years. Analysts expect VMW's revenue to increase 7.1% in the current year and 7.9% next year. The company's EPS is expected to decline 3% in the current year but grow 11.1% next year. Furthermore, its EPS is expected to grow at 6.2% per annum over the next five years.
In comparison, NTNX's revenue and total assets have grown at CAGRs of 7% and 8.3%, respectively, over the past three years. The company's revenue is expected to increase 16.6% in the current year and 19% next year. Its EPS is expected to grow 42.6% in the current year and 68.2% next year. Also, NTNX's EPS is expected to decrease at a rate of 38.5% per annum over the next five years.
VMW's trailing-12-month revenue is 8.80 times what NTNX generates. VMW is also more profitable, with gross profit and levered FCF margins of 82.34% and 32.42%, respectively, versus NTNX's 79.07% and 12.74%.
Furthermore, VMW's ROA and ROTC are 5.48% and 11.37%, respectively, compared to NTNX's negative values.
In terms of trailing-12-month EV/S, VMW is currently trading at 4.55x, which is 12.6% higher than NTNX's 4.04x. However, NTNX's 3.91x trailing-12-month P/S ratio is higher than VMW's 3.90x.
VMW has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In contrast, NTNX has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Furthermore, VMW has a B grade for Quality. This is justified given VMW's 14.16% trailing-12-month net income margin, which is 142.5% higher than the 5.84% industry average. In contrast, NTNX has a Quality grade of C, which is in sync with its negative trailing-12-month net income margin, versus the industry's 5.84% average.
Rapid digitization and increasing enterprise data volume are expected to drive the software market's growth. While both VMW and NTNX are expected to gain, we think it is better to bet on VMW now because of its higher profit margin.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software - Business industry here. Also, click here to access all the top-rated stocks in the Software - Application industry.
VMW shares were trading at $118.75 per share on Thursday morning, down $0.85 (-0.71%). Year-to-date, VMW has gained 2.48%, versus a -7.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock's price is the key approach that he follows while advising investors in his articles.
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