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Nov 15, 2016

S3 BLACKLIGHT: Nutanix Short Sellers Run out of Stock Borrows

Nutanix Inc (NTNX US) has seen its stock price rise and fall after its IPO launch on September 29th. The cloud networking and storage equipment maker’s stock price recently climbed over $30 again, up 88%, from its $16 IPO price after several weeks of consolidating around the $24 to $29 price range.

Nutanix’s stock price nearly tripled its IPO price on October 3rd, hitting $44.46, as analysts began predicted a strong fiscal 1st quarter would be reported on November 29th.  With only the long side being able to participate in trading NTNX stock from September 29th to November 3rd, NTNX’s stock price rose 178%, to $44.46.

Once the short sellers were able to borrow stock and get in the game, Nutanix’s stock price began a steady downward decent until it hit its post-IPO low of $23.37 on November 7th. Short interest has climbed to $156 million dollars, barely a dent in Nutanix’s $4.2 billion market cap but virtually all of Nutanix’s stock borrow availability has been taken down.

There is only $10 to $15 million of stock left to borrow until short sellers will again be sitting on the sidelines watching long shareholders bid up Nutanix’s stock price. Because a large chunk of Nutanix’s stock is locked up or not in lending programs, there is very little short sellers can do except wait for the lockup expiry on March 29th, 2017. More stock may become available in the interim, but not in any significant size.

Stock borrow rates on existing short positions is around 9% fee and recent stock borrows for new shorts have ranged from 9% to 13% fee. We expect rates to continue to climb as the last stock borrow crumbs are taken down, with rates hitting the low teens by next week and climbing higher if short selling demand remains strong and desperate short sellers bid up stock borrow rates.

Nutanix is a prime example of a short squeeze waiting to happen. Stock borrow rates are already climbing as there is very little stock borrow inventory left on the street and longs will be able to bid up the stock price with no short selling in size to offset their buying pressure. Shorts will then have to endure a double whammy until lockup expiry in March – rising stock borrow fees increasing their cost basis and an increasing stock price pushing their P\L numbers further in the red.

If Nutanix’s 1st quarter results beat estimates on November 29th we can expect not only a price spike due to longs bidding up the stock, but also shorts being squeezed and covering their positions. With its stock price already trending upwards for a week, a return to the $40’s would not be surprising.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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