Is Pure Storage Stock a Good Investment?

Pure Storage stock price has seen an increase of 82% since the beginning of the year. What factors are behind this trend?

Given the competition in the flash storage sector it begs the question, what is driving this company’s performance compared to the overall market?

One key factor contributing to Pure Storages success is its innovative use of flash memory technology, which delivers faster data access speeds and lower latency compared to traditional hard disk drives.

This translates into performance, for businesses using enterprise applications those that rely on real time data processing.

In essence, Pure Storage has addressed the limitations of legacy storage systems, and in turn provided businesses with a really strong reason to upgrade to all-flash storage arrays.

So is the upgrade cycle thesis working out well?

Pure Storage Signing Lucrative Deals

In May, management announced that Ampersand is leveraging the Pure Storage platform. That’s the biggest TV industry source for multi-screen inventory and viewership knowledge.

In March, the company announced fresh validated reference architectures for generative AI use cases that include a new NVIDIA OVX-ready framework. Pure Storage is working together with NVIDIA (NASDAQ:NVDA) to offer worldwide customers a strong framework.

This helps in managing high-performance data and compute requirements necessary for successful deployments of artificial intelligence.

Plus, the company made an announcement in the same month that Empresas Berríos, which is the biggest furniture store in Puerto Rico and holds the title for being the main distribution center across Central America, is using Pure Storage’s portfolio. This bodes well for the company’s growth.

Market Opportunity Growing Exponentially

For investors, there is lots to like. For example, the total addressable market for Pure Storage continues to expand as data becomes a critical asset for businesses across various industries.

According to IDC, the global datasphere is expected to reach 175 zettabytes by 2025, up from 45 zettabytes in 2019. Another way of saying that is data volume is growing exponentially, and that means there is a massive opportunity for Pure Storage to capture market share.

Plus, the ongoing shift towards cloud computing, artificial intelligence, and big data analytics is conspiring to amplify the demand for high-performance storage solutions.

Do The Financials Back Up The Hype?

The numbers appear to be backing up investor enthusiasm. Last year, the company reported revenues of $2.6 billion, a year-over-year increase of 26%.

It’s a sign that Pure Storage the data-centric applications offered by the company are in strong demand. Better yet, the company’s gross margin has remained healthy, hovering around 70%, which emphasizes its ability to maintain pricing power and operational efficiency.

In the fiscal 2024 fourth quarter, Pure Storage reported a year-over-year increase of 1.4% in its non-GAAP gross profit reaching $581.99 million.

Pure Storage’s cash inflow from operating activities increased 4.9% to $244.43 million year over year, and the company’s non-GAAP free cash flow was $200.86 million, which is an increase of 16.2% year over year.

At the end of fiscal 2024, total current assets were $2.50 billion compared to $2.47 billion in FY 2023. Total assets were $3.66 billion compared with $3.54 billion as of the close of last year.

Finally, total liabilities decreased to $2.39 billion from the prior level of $2.60 billion.

What Does The Future Look Like For Pure Storage?

The expectations are for double-digit revenue growth next year with an increase of 10.5% up to $3.1 billion.

Management predicts that, for the first quarter of fiscal 2025, it will earn $680 million in revenue, a rise of 15.4% versus the year prior.

Operating profit is expected to come in around $532 million, a meaningful increase. Additionally, the expected yearly operating margin of 17% underlines how efficiently this company operates and its financial strength. It shows the company can turn a large part of its income into profits.

In fiscal 2025’s first quarter, an operating profit of $68 million is anticipated. The business’ margin for the same period is expected to be 10%. The quarterly percentage might be less than the yearly average, but it still reveals solid profitability at the start of the fiscal year.

What About the Bottom Line?

Pure Storage has a trailing-12-month gross profit margin of 71.40%, much bigger than the industry standard, which is 49.05%. The higher margin in gross profit signifies Pure Storage’s better control over costs and pricing methods.

Again, Pure Storage’s trailing-12-month levered free cash flow margin is at 14.76%. This goes above the average of industry, which stands at 9.74% by around 51.5%.

The ratio of capital expenditure to sales comes out to be 6.89%, showing that it’s much bigger than what other companies in this area show – on average, they only spend about 2.3%.

In addition, the trailing-12-month asset turnover ratio for Pure Storage is 0.79x. Compared to the industry average of 0.62x, this shows the company is using its assets well to make money.

Also, the company’s trailing-12-month cash from operations stands at $677.72 million, which is much better than its industry average of only $93 million, showing a strong performance in managing operational cash flow.

Is Pure Storage Stock a Good Investment?

The 20 analysts who cover Pure Storage is a good investment with 14.4% upside to fair value of $69.36 per share.

For the first quarter of fiscal 2025 that ended in April, forecasts suggest a rise in revenue by 15.5% from last year to reach $680.91 million. EPS is predicted at roughly $0.21, which would be an increase of about 168.5% from this same period last year.

Plus, Pure Storage has performed exceptionally well in the last four quarters, consistently exceeding consensus forecasts for both revenue and EPS.

For the fiscal year ending January 2025, a growth rate of 10.5% is anticipated in revenue to $3.13 billion, whereas EPS is expected to rise by 11.2% up to $1.56. 

The bottom line is a combination of strong revenue and earnings growth alongside market expansion and a heavy commitment to R&D has led to an intriguing investment opportunity that may still have some serious upside if analysts are right.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.