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Pure Storage Jumps 39% Year to Date: What Lies Ahead for the Stock?
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Pure Storage, Inc’s (PSTG - Free Report) shares have been performing well on the trading front, with a gain of 38.7% year to date. Headquartered in Mountain View, CA, Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for its customers.
The stock has outperformed its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 34.6%, 23.7% and 20.6%, respectively.
YTD Price Performance
Image Source: Zacks Investment Research
Closing at $49.44, the stock is down 30% from its 52-week high level of $70.41, reached on June 18, 2024. PSTG trades below its 50-day moving average and this suggests a bearish trend.
Image Source: Zacks Investment Research
Let’s dive into PSTG’s prospects and determine the best course of action for your portfolio.
Higher Demand for FlashBlade Drives PSTG’s Top Line
PSTG is riding on strong demand for its FlashBlade solutions, including FlashArray//E, Flashblade//E, FlashArray//C and subscription-based offerings. FlashBlade//E is an unstructured data repository solution for large-capacity data stores. Customers can also deploy this latest solution through a new service tier of PSTG's Evergreen//One Storage as-a-Service subscription. Higher subscription revenues are other growth catalysts. In the last reported quarter, Subscription services revenues (47.3%) of $361.2 million rose 25% on a year-over-year basis.
The rapid advances in AI technology are opening up several market opportunities for Pure Storage in various market segments. It announced several critical new platform features aimed at addressing the evolving needs of enterprise customers amid a rapid proliferation of AI in the second quarter. The most notable move was the introduction of Evergreen//One, the first storage-as-a-service solution specifically designed for AI workloads. This offering is expected to be beneficial for enterprises looking to deploy AI at scale, providing them with a storage solution that streamlines the management of AI data.
Pure Storage also announced enhancements to Pure Fusion, a platform that delivers first-of-its-kind storage automation. These advancements further reduce the complexity of managing enterprise storage environments by removing the data silos of existing enterprise data storage systems, enabling customers to achieve greater efficiency and agility in their operations. In addition, the company introduced an industry-first generative AI copilot for storage.
PSTG’s Growing Customer Base
Higher sales to new and existing enterprise customers across the data storage platform are tailwinds. In the second quarter of fiscal 2025, Pure Storage added more than 261 new customers. At the end of the quarter, the company’s customer count was more than 13,000, including 62% of the Fortune 500 companies. Improving penetration into Global 2000 and Fortune 500 bodes well. We believe that the customer base would continue to expand driven by the impressive product portfolio, innovative pipeline and strong partner base.
PSTG’s Sound Capital Allocation Strategy
Pure Storage has a strong balance sheet with ample liquidity position. It exited the fiscal second quarter that ended on Aug. 4 with cash, cash equivalents and marketable securities of $1.8 billion. The company had a long-term debt of $0.1 million as of Aug. 4, 2024. Cash flow from operations amounted to $226.6 million in the fiscal second quarter compared with $101.6 million in the prior-year quarter. Free cash flow was $166.6 million compared with $46.5 million a year ago. Robust liquidity and cash flow reflect that the company is making investments in the right direction.
In the fiscal second quarter, the company did not repurchase any shares due to trading restrictions. PSTG has $395 million left under its authorization plan.
PSTG Lowers Outlook for TCV Sale
PSTG lowered guidance for total contract value (“TCV”) sales for Evergreen//One and Evergreen//Flex subscription service offerings. It now expects TCV sales to be $500 million, implying 25% growth from a year ago. Earlier, the company forecasted TCV sales to be $600 million, implying 50% growth from a year ago. Following the outlook revision on Aug. 28, the stock has lost 17.2% of its value so far.
Pure Storage is witnessing stretched closing deadlines for larger Evergreen//One deals. In the first half of 2024, the company was able to finalize only three Evergreen//One deals compared with multiple deals of large scale being settled in the prior-year period. Owing to the extended closure timing, the deals are getting shifted to the subsequent quarters. This ripple effect is forcing the company to lower its outlook for Evergreen//One and Evergreen//Flex solutions.
Moreover, the uncertain macroeconomic environment and cautious IT spending amid stiff competition in the all-flash business remain concerning.
Outlook Causes Downward Revision in Estimates for PSTG
Following the outlook revision, analysts seem bearish about the stock as suggested by the downward revision in earnings estimates.
In the past 60 days, analysts have decreased their earnings estimates for the current quarter and next by 2.3% and 6%, respectively, to 43 cents and 47 cents per share. The earnings estimate for the next year has also been revised downward by 1.6% to $1.91.
However, the earnings estimate for the current year has been revised upward by 1.2% to $1.66.
PSTG’s Expensive Valuation a Concern
PSTG’s stock is trading at a premium with a forward 12-month Price/Earnings of 27.12X compared with the industry’s 15.01X. Though the lofty valuation reflects high expectations for growth, the near-term prospects of the company remain somewhat muddled.
Image Source: Zacks Investment Research
PSTG’s Zacks Rank
PSTG carries a Zacks Rank #3 (Hold) at present.
A nuanced approach is needed while dealing with PSTG. The stock has a solid growth opportunity driven by demand for its FlashBlade solutions and the rapid proliferation of AI. However, the expensive valuation and lowered TCV outlook warrant caution. Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, long-term stakeholders and investors already owning the stock can stay put.
The Zacks Consensus Estimate for STX’s fiscal 2025 EPS is pegged at $7.41, unchanged in the past 30 days. STX’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the remaining quarter, with the average surprise being 80.9%. The stock has surged 64.3% in the past year.
The Zacks Consensus Estimate for American Software’s 2024 EPS is pegged at 38 cents, unchanged in the past seven days. AMSWA’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching in the remaining quarter, with the average surprise being 84.5%. Its shares have declined 3.3% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 9.4% in the past year.
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Pure Storage Jumps 39% Year to Date: What Lies Ahead for the Stock?
Pure Storage, Inc’s (PSTG - Free Report) shares have been performing well on the trading front, with a gain of 38.7% year to date. Headquartered in Mountain View, CA, Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for its customers.
The stock has outperformed its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 34.6%, 23.7% and 20.6%, respectively.
YTD Price Performance
Image Source: Zacks Investment Research
Closing at $49.44, the stock is down 30% from its 52-week high level of $70.41, reached on June 18, 2024. PSTG trades below its 50-day moving average and this suggests a bearish trend.
Image Source: Zacks Investment Research
Let’s dive into PSTG’s prospects and determine the best course of action for your portfolio.
Higher Demand for FlashBlade Drives PSTG’s Top Line
PSTG is riding on strong demand for its FlashBlade solutions, including FlashArray//E, Flashblade//E, FlashArray//C and subscription-based offerings. FlashBlade//E is an unstructured data repository solution for large-capacity data stores. Customers can also deploy this latest solution through a new service tier of PSTG's Evergreen//One Storage as-a-Service subscription.
Higher subscription revenues are other growth catalysts. In the last reported quarter, Subscription services revenues (47.3%) of $361.2 million rose 25% on a year-over-year basis.
The rapid advances in AI technology are opening up several market opportunities for Pure Storage in various market segments. It announced several critical new platform features aimed at addressing the evolving needs of enterprise customers amid a rapid proliferation of AI in the second quarter. The most notable move was the introduction of Evergreen//One, the first storage-as-a-service solution specifically designed for AI workloads. This offering is expected to be beneficial for enterprises looking to deploy AI at scale, providing them with a storage solution that streamlines the management of AI data.
Pure Storage also announced enhancements to Pure Fusion, a platform that delivers first-of-its-kind storage automation. These advancements further reduce the complexity of managing enterprise storage environments by removing the data silos of existing enterprise data storage systems, enabling customers to achieve greater efficiency and agility in their operations. In addition, the company introduced an industry-first generative AI copilot for storage.
PSTG’s Growing Customer Base
Higher sales to new and existing enterprise customers across the data storage platform are tailwinds. In the second quarter of fiscal 2025, Pure Storage added more than 261 new customers. At the end of the quarter, the company’s customer count was more than 13,000, including 62% of the Fortune 500 companies. Improving penetration into Global 2000 and Fortune 500 bodes well. We believe that the customer base would continue to expand driven by the impressive product portfolio, innovative pipeline and strong partner base.
PSTG’s Sound Capital Allocation Strategy
Pure Storage has a strong balance sheet with ample liquidity position. It exited the fiscal second quarter that ended on Aug. 4 with cash, cash equivalents and marketable securities of $1.8 billion. The company had a long-term debt of $0.1 million as of Aug. 4, 2024. Cash flow from operations amounted to $226.6 million in the fiscal second quarter compared with $101.6 million in the prior-year quarter. Free cash flow was $166.6 million compared with $46.5 million a year ago. Robust liquidity and cash flow reflect that the company is making investments in the right direction.
In the fiscal second quarter, the company did not repurchase any shares due to trading restrictions. PSTG has $395 million left under its authorization plan.
PSTG Lowers Outlook for TCV Sale
PSTG lowered guidance for total contract value (“TCV”) sales for Evergreen//One and Evergreen//Flex subscription service offerings. It now expects TCV sales to be $500 million, implying 25% growth from a year ago. Earlier, the company forecasted TCV sales to be $600 million, implying 50% growth from a year ago. Following the outlook revision on Aug. 28, the stock has lost 17.2% of its value so far.
Pure Storage is witnessing stretched closing deadlines for larger Evergreen//One deals. In the first half of 2024, the company was able to finalize only three Evergreen//One deals compared with multiple deals of large scale being settled in the prior-year period. Owing to the extended closure timing, the deals are getting shifted to the subsequent quarters. This ripple effect is forcing the company to lower its outlook for Evergreen//One and Evergreen//Flex solutions.
Moreover, the uncertain macroeconomic environment and cautious IT spending amid stiff competition in the all-flash business remain concerning.
Outlook Causes Downward Revision in Estimates for PSTG
Following the outlook revision, analysts seem bearish about the stock as suggested by the downward revision in earnings estimates.
In the past 60 days, analysts have decreased their earnings estimates for the current quarter and next by 2.3% and 6%, respectively, to 43 cents and 47 cents per share. The earnings estimate for the next year has also been revised downward by 1.6% to $1.91.
However, the earnings estimate for the current year has been revised upward by 1.2% to $1.66.
PSTG’s Expensive Valuation a Concern
PSTG’s stock is trading at a premium with a forward 12-month Price/Earnings of 27.12X compared with the industry’s 15.01X. Though the lofty valuation reflects high expectations for growth, the near-term prospects of the company remain somewhat muddled.
Image Source: Zacks Investment Research
PSTG’s Zacks Rank
PSTG carries a Zacks Rank #3 (Hold) at present.
A nuanced approach is needed while dealing with PSTG. The stock has a solid growth opportunity driven by demand for its FlashBlade solutions and the rapid proliferation of AI. However, the expensive valuation and lowered TCV outlook warrant caution. Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, long-term stakeholders and investors already owning the stock can stay put.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Seagate Technology Holdings plc (STX - Free Report) , American Software, Inc. (AMSWA - Free Report) and ANSYS (ANSS - Free Report) . While Seagate sports a Zacks Rank #1 (Strong Buy), AMSWA and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for STX’s fiscal 2025 EPS is pegged at $7.41, unchanged in the past 30 days. STX’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the remaining quarter, with the average surprise being 80.9%. The stock has surged 64.3% in the past year.
The Zacks Consensus Estimate for American Software’s 2024 EPS is pegged at 38 cents, unchanged in the past seven days. AMSWA’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching in the remaining quarter, with the average surprise being 84.5%. Its shares have declined 3.3% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 9.4% in the past year.