Nutanix, Inc. (NASDAQ:NTNX) shares are down more than -2.82% this year and recently decreased -3.19% or -$0.85 to settle at $25.81. Okta, Inc. (NASDAQ:OKTA), on the other hand, is up 21.27% year to date as of 10/12/2017. It currently trades at $28.51 and has returned 2.74% during the past week.
Nutanix, Inc. (NASDAQ:NTNX) and Okta, Inc. (NASDAQ:OKTA) are the two most active stocks in the Technical & System Software industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use Return on Investment (ROI) to measure this. NTNX’s ROI is -895.50% while OKTA has a ROI of 34.30%. The interpretation is that OKTA’s business generates a higher return on investment than NTNX’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. NTNX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.04. Comparatively, OKTA’s free cash flow per share was -0.10. On a percent-of-sales basis, NTNX’s free cash flow was -0% while OKTA converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, NTNX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. NTNX has a current ratio of 1.60 compared to 1.80 for OKTA. This means that OKTA can more easily cover its most immediate liabilities over the next twelve months. NTNX’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for OKTA. NTNX is therefore the more solvent of the two companies, and has lower financial risk.
NTNX trades at a P/B of 83.26, and a P/S of 5.14, compared to a P/B of 17.49, and a P/S of 12.95 for OKTA. NTNX is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. NTNX is currently priced at a -11.43% to its one-year price target of 29.14. Comparatively, OKTA is -9% relative to its price target of 31.33. This suggests that NTNX is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for NTNX and 2.40 for OKTA, which implies that analysts are more bullish on the outlook for OKTA.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. NTNX has a short ratio of 3.89 compared to a short interest of 3.86 for OKTA. This implies that the market is currently less bearish on the outlook for OKTA.
Okta, Inc. (NASDAQ:OKTA) beats Nutanix, Inc. (NASDAQ:NTNX) on a total of 5 of the 14 factors compared between the two stocks. OKTA has higher cash flow per share, higher liquidity and has lower financial risk. Finally, OKTA has better sentiment signals based on short interest.