Will Pure Storage Inc. (NYSE:PSTG) Stock Benefit From The Booming Storage Sector

- January 12, 2018

Pure Storage Inc. (NYST:PSTG) is in the booming solid state storage sector. Pure Storage Inc. (NYSE:PSTG) engages in the provision of flash-based storage solutions. Its technology replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory. The company was founded by John Hayes and John Colgrove in October 2009 and is headquartered in Mountain View, California, USA.

The solid-state array sector should help drive Pure Storage Stock. 

Solid-state storage (SSS) is a type of computer storage media made from silicon microchips. SSS stores data electronically instead of magnetically, as spinning hard disk drives (HDDs) or magnetic oxide tape do.

In 2016 the overall solid-state array (SSA) market grew by 72%, with total revenue of $4.6 billion. The purchase price of SSAs continues to drop by at least 40% in the last 18 months.

Gartner research stated last year: “Within the next 12 months, solid-state arrays will improve in performance by a factor of 10, and double in density and cost-effectiveness, therefore changing the dynamics of the storage market. By 2021, 50% of data centers will use SSAs for high-performance computing and big data workloads, up from less than 10% today.

Source Gartner.com

Gartner ranks Pure Storage Inc. (NYSE:PSTG) Stock as the best amongst peers for “completeness of vision” and “ability to execute”

Source: Gartner.com

About the business

On November 28, 2017 Pure Storage CEO Charlie Giancarlo stated: “Pure has built a platform that allows customers to build a better world with data. Pure offers a simpler, more effective and agile solution for data-rich applications like artificial intelligence.”

Chairman of the Board of Pure Storage Dietzen recently said, “We now provide storage to nearly 100 firms within the Fortune 500, up from about 50 firms this time last year. The company added 300 new customers in the (past) quarter, increasing the total customer count to 4,000+.”Pure Storage Inc. historical revenue growing faster than peers.

Pure Storage Inc. historical revenue growing faster than peers.

Source:The Register

Let’s take a look at Pure Storage (NYSE:PSTG) balance sheet using HADE Platform

Source: HADE Platform 

Pure Storage Inc. Earnings per share and EPS forecast

The graph below shows Pure Storage Earnings Per Share (EPS) growth at 62.98% pa, and is forecast to turn positive in 2019. Note some analysts are forecasting EPS positive for 2020.

Source: SaxoTrader

Competition and Risks

The graph above titled “Pure Storage Inc. historical revenue growing faster than peers” shows Pure Storage’s competition, and how they are leading their peers.

Risks lie in the company not yet making profits, and that the disruptor Pure Storage Inc. may be disrupted by someone else with a newer and better technology in the future.

Financials and Valuation

Pure Storage Inc. has a market cap of $3.6b and an enterprise value of $ 3.1b.

2018 PE is negative 18.7, and 2019 PE is negative 25.7. Net profit margins for 2018 are forecast to be negative 19.3% and negative 9.49% in 2019. The company has no debt. Dividend yield is 0%.

EV/Revenue for 2018 is 3.05x and 2.24x in 2019.

Analyst consensus estimates are for a target price of US$ 20.67, with an outperform rating.

Conclusion

Pure Storage Inc (NYSE:PSTG) is in the booming solid state storage sector with a CAGR of 29%. The company is clearly an industry innovator and leader, with rapidly growing revenues and shrinking net losses expected to turn into profits around 2029/2020. If Pure Storage is able to continue to grow their client base and become highly profitable then they will soon grow into their lofty valuation (Enterprise Value of US$3.2b).

Competitive threats and declining solid state memory prices are the negative forces, fighting against a growing sector and economies of scale.

Analysts rate the stock an outperform, and I would rate them a speculative buy on dips.

 

 

 

 

 

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