Pure Storage (PSTG)

Data storage solutions provider Pure Storage (NYSE:PSTG) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 12.3% year on year to $778.5 million. Guidance for next quarter’s revenue was better than expected at $845 million at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $0.29 per share was 17.1% above analysts’ consensus estimates.

Company Overview

Founded in 2009 as a pioneer in enterprise all-flash storage technology, Pure Storage (NYSE:PSTG) provides all-flash data storage hardware and software that helps organizations manage their data more efficiently across on-premises and cloud environments.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

Pure Storage competes primarily with legacy data storage vendors including Dell EMC, NetApp, Hitachi Vantara, IBM, and HPE. The company also faces competition from cloud storage services offered by major public cloud providers like AWS, Microsoft Azure, and Google Cloud.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $3.25 billion in revenue over the past 12 months, Pure Storage is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Pure Storage’s 14.1% annualized revenue growth over the last five years was exceptional. This is a great starting point for our analysis because it shows Pure Storage’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Pure Storage’s annualized revenue growth of 9.3% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Pure Storage reported year-on-year revenue growth of 12.3%, and its $778.5 million of revenue exceeded Wall Street’s estimates by 1.1%. Company management is currently guiding for a 10.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.1% over the next 12 months, an improvement versus the last two years. This projection is admirable and suggests its newer products and services will fuel better top-line performance.

Pure Storage was roughly breakeven when averaging the last five years of quarterly operating profits, one of the worst outcomes in the business services sector.

On the plus side, Pure Storage’s operating margin rose by 17.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Pure Storage generated a negative 4% operating margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Pure Storage’s EPS grew at an astounding 36.9% compounded annual growth rate over the last five years, higher than its 14.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Pure Storage’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Pure Storage’s operating margin expanded by 17.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Pure Storage reported EPS at $0.29, down from $0.32 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Pure Storage’s full-year EPS of $1.68 to grow 8.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Pure Storage has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 17% over the last five years. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Pure Storage’s margin expanded by 13 percentage points during that time. This is encouraging because it gives the company more optionality.

Pure Storage’s free cash flow clocked in at $211.6 million in Q1, equivalent to a 27.2% margin. This result was good as its margin was 2.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Pure Storage is a profitable, well-capitalized company with $1.58 billion of cash and $271 million of debt on its balance sheet. This $1.31 billion net cash position is 7.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We liked how revenue and EPS exceeded expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, subscription ARR in the quarter missed. Overall, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 1.1% to $54.51 immediately after reporting.

Updated: June 19, 2025 at 11:50 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Pure Storage.

Pure Storage is one of the best business services companies out there. For starters, its revenue growth was exceptional over the last five years. On top of that, its ARR growth has been marvelous, and its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Pure Storage’s P/E ratio based on the next 12 months is 29.1x. Looking across the spectrum of business services businesses, Pure Storage’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $69.68 on the company (compared to the current share price of $52.85), implying they see 31.8% upside in buying Pure Storage in the short term.