Pure Storage (PSTG)

Data storage solutions provider Pure Storage (NYSE:PSTG) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 12.7% year on year to $861 million. On top of that, next quarter’s revenue guidance ($955 million at the midpoint) was surprisingly good and 4.6% above what analysts were expecting. Its non-GAAP profit of $0.43 per share was 10.9% 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 sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $3.35 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 sales grew at an exceptional 14.7% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Pure Storage’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Pure Storage’s annualized revenue growth of 10.1% 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 12.7%, and its $861 million of revenue exceeded Wall Street’s estimates by 1.7%. Company management is currently guiding for a 14.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.4% over the next 12 months, an improvement versus the last two years. This projection is healthy and indicates its newer products and services will spur 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 14.4 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Pure Storage’s breakeven margin was down 2.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

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 33.1% compounded annual growth rate over the last five years, higher than its 14.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Pure Storage’s earnings to better understand the drivers of its performance. As we mentioned earlier, Pure Storage’s operating margin declined this quarter but expanded by 14.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Pure Storage, its two-year annual EPS growth of 15.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Pure Storage reported adjusted EPS of $0.43, down from $0.44 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 $1.67 to grow 22.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 17.4% 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 8.4 percentage points during that time. This is encouraging because it gives the company more optionality.

Pure Storage’s free cash flow clocked in at $150.1 million in Q2, equivalent to a 17.4% margin. The company’s cash profitability regressed as it was 4.4 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Pure Storage is a profitable, well-capitalized company with $1.54 billion of cash and $222.7 million of debt on its balance sheet. This $1.31 billion net cash position is 6.9% 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 were impressed by Pure Storage’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also glad its revenue and EPS both outperformed Wall Street’s estimates this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 13.8% to $69.30 immediately following the results.

Updated: November 12, 2025 at 11:18 PM EST

Are you wondering whether to buy Pure Storage or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Pure Storage is truly a cream-of-the-crop business services company. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. 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 39.7x. Some good news is baked into the stock given its multiple, but we’ll happily own what we believe is one of the best businesses in our coverage. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany relatively high valuations.

Wall Street analysts have a consensus one-year price target of $89.39 on the company (compared to the current share price of $87.50).