Why Nutanix Inc (NTNX) Stock Shot Up Yesterday

Nutanix Stock Rallies Hard Driven By A Host Of Factors Nutanix Inc - Why NTNX Stock Shot Up Yesterday

Shares of San Jose, California-based Nutanix Inc (NSDQ:NTNX) gained by a massive 13.29% on Thursday. A host of reasons seem to have triggered the spike, backed by higher than average volumes. For starters, there has been a lot of positive news flow, including a slew of extremely bullish reports. In fact, NTNX stock is still trading below the consensus price target, even after Thursday's rally.

The spike also coincides with the formation of some bullish trends if you go by technical indicators, and it's possible that traders might have used the opportunity to initiate long positions in the stock. Last but not the least, given the spike in short interest lately, it seems very likely that the stock rose, at least in part, due to short unwinding. We'll look at each of these factors in detail, starting with the recent news flow.

Nutanix Inc - A Slew Of Bullish Commentary

Possibly the most bullish commentary came from Brian Feroldi on The Motley Fool, in a post dated 13th December. The post, which aims to identify stocks that could double in 2017, features Nutanix as one of those stocks. Now that's quite an endorsement. While branding the Nutanix IPO a "busted IPO", Feroldi opines that concerns around the growing threat from industry giants are overblown. He expects two of Nutanix's recent acquisitions "to give it increased scale and a more robust product offering." Quoting analyst estimates of a 40% YoY top line growth in 2017, Feroldi expects "to see its discounted share price start heading in the right direction again." (Also Read: The Most Interesting Tech IPOs)

On the same day, an article by The Cerbat Gem listed on Google Finance, reported that Canada Pension Plan Investment Board (CPPIB) was one of the many big names to buy a stake in the hyperconverged solutions provider. CPPIB, is a state owned fund established by the Canadian government. CPPIB reportedly bought 600,000 shares of the company's stock, worth about $22 million, which takes its total holding to about 2.2 million shares, worth over $62 million. The Dollar figures reported are as of that day. The stock seems to be finding favor with hedge funds as well. A report by Insider Monkey earlier this month, also reported that NTNX stock is owned by 35 hedge funds. Institutional interest in stocks is generally seen as a positive sign. The caveat being that large investors could potentially also impact the stock unfavorably, if and when they exit.

The post also lists quite a few big names as owners of Nutanix stock, like JPMorgan Chase & Co. and UBS Asset Management Americas Inc. among others. More importantly, the post highlights the bullish analyst ratings NTNX stock has received. Analysts ranging from Morgan Stanley and Robert W. Baird to Needham & Company LLC, Pacific Crest and Oppenheimer, among others, have all assigned the stock a 'buy', 'outperform' or equivalent rating, culminating in a consensus price target of $33.56. We don't want to indulge in any speculation, but one interview on Barron's also pondered about what a partnership with Amazon (NSDQ:AMZN) would look like.

NTNX Stock Had Entered 'Oversold' Territory

All of this bullish commentary seems to coincide with a bullish pattern formation when you draw up a stock price chart with Bollinger Bands and the Relative Strength Index's (RSI), two popular and commonly used technical indicators. The charts show that Nutanix's stock was closing in on the lower Bollinger band at the end of 14th December, which is seen as an indication of an impending uptrend. Similarly, the stock also entered 'oversold' territory on 14th as indicated by the RSI which fell to as low as 14.8. It seems likely that traders, who go largely by technical indicators, might have used the opportunity to initiate long positions in NTNX stock. (Also Read: TWLO Stock: Twilio Inc A Tempting But Risky Bet For Now)

The Shorts Have Been Piling Up On NTNX Stock

Short interest in NTNX stock has been rising constantly since mid-October, piling up all the way from just over 1.7 million shares, to well over 4.5 million shares. It's worth noting that Nutanix doesn't have a very large share count. As a matter of fact, short interest as of 30th November, which is the most recent data point available, stood at a massive 34% of float, pushing 'days to cover' to nearly 3 days. Just over 1.8 million shares changed hands yesterday, which suggests that more short unwinding could be in store if the stock rises further. Do note though, there's a blind spot between the end of November and now, and we don't know how short interest changed during that period. So, it wouldn't be a good idea to bet on that.

It seems very likely that all of these factors put together led to yesterday's sharp rally in NTNX stock. However, to be honest, in the absence of any big news on 14th, it's hard to say with certainty what caused this jump. Investors would do well to watch the stock closely to see how the next few trading sessions pan out for the hyperconverged solutions provider.

If you're wondering "what the heck does Nutanix do?", check out that post. But if you're looking for top tech stocks that have beaten the NASDAQ by over 110%, check out our top tech stock picks.