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Nutanix(NTNX 1.70%) dazzled investors in its latest earnings report.The cloud stock jumped 29% on Thursday as the company beat estimates on the top and bottom lines in its fiscal fourth quarter.

Though annual contract value (ACV) billings increased 10% to $193.2 million, revenue actually fell 1% to $385.5 million due to the timing of contracts and supply chain delays with its server partners. That top-line number was still much better than estimates at $354.9 million as contract renewals in the quarter were strong, and it actually faced fewer supply chain issues than expected.

On the bottom line, its loss per share narrowed from $0.26 to $0.17, compared to estimates for a per-share loss of $0.38. And Nutanix posted positive free cash flow (FCF) of $23.2 million, compared to a loss of $42.2 million in the quarter a year ago. The company finished the year with an FCF profit of $18.5 million -- its first year with positive free cash flow since 2018.

Though the recent results were promising, Nutanix has mostly disappointed investors over its history. Shares of the company, which makes hybrid cloud infrastructure software that makes it easier for businesses to move applications between public and private clouds, are actually down from where they closed on their initial public offering (IPO) day in 2016.

Over its time as a publicly traded company, Nutanix has transitioned from a hardware company that initially sold a box to run its software into a software company and then a subscription software company. Later, the company shifted its sales focus from total contract value to annual contract value, further clouding the financial picture for investors. Though, that transition is now complete.

Nutanix appears to be moving past much of the earlier noise and false starts that plagued the stock. As its average contract term has fallen, revenue growth is lagging behind other top-line metrics, like ACV billings and annual recurring revenue. However, management expects that gap to narrow as its average contract length stabilizes at around three years. Meanwhile, a greater percentage of its growth comes from renewals, which will improve profitability and smooth its revenue growth.

The company has long earned high customer satisfaction marks. Its net promoter score is 90, meaning nearly all its customers would recommend the product to a peer. Further, its gross renewal rate is also above 90%, showing that the vast majority of its customers stick with the product.

Nutanix has also renewed its commitment to profitability, aiming for a 10%-15% free cash flow margin by fiscal 2025. That would give it at least $300 million in free cash flow. It's laying off 4% of its workforce to help get there, saying it would reduce annual expenses by $55 million-$60 million.

Despite macro headwinds weighing on other cloud stocks, Nutanix expressed confidence about the upcoming fiscal year, even mentioning on the earnings call that the company can benefit from a sluggish economy because its product helps customers save money. Management also said it expected to benefit from Broadcom's acquisition of chief rival VMWare as any changes or disruptions there could drive more customers to Nutanix.

Finally, its guidance calls for fiscal 2023 revenue of $1.77 billion-$1.78 billion, or 12.3% growth at the midpoint, and an adjusted operating margin of 2%, showing it should be profitable (at least on an adjusted basis). It called for ACV billings of $895 million-$900 million, up 18.7% from 2022.

The buy case for the stock looks a lot stronger after the latest quarter as the company's financial performance is clearly improving, moving quickly toward profitability. However, given its erratic history, it may be best for investors to take a wait-and-see approach here. Compared to other cloud stocks, Nutanix is less expensive according to most metrics, but that's because its growth rate is also slower and it's been unprofitable throughout its history.

Nutanix's quarter of outperformance is promising, but investors are better off waiting another quarter or two to see whether the momentum continues into fiscal 2023. Given its 2025 free cash flow target, there should still be plenty of upsides to capture if the turnaround really does play out.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom Ltd, Nutanix, and VMware. The Motley Fool has a disclosure policy.

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This Lesser-Known Cloud Computing Company Is Primed for a Turnaround. Is It Time To Buy? - The Motley Fool