Pure Storage (NYSE: PSTG) is riding a wave of demand, with revenue rising and margins expanding. The combination has lifted the stock price by 500% since the 2020 low and by 100% in the last six months. Because the latest earnings report included accelerating results, showing momentum building, and profits growing, this stock could rise by 100% again. The caveat for investors is that the ride to new highs won’t come in a straight line, and price corrections will come. The takeaway is that this budding large-cap tech stock is on track to sustain a high level of growth and provide shareholder value; buy it on the dip. 

Pure Storage Well-Positioned in an AI-Centric World

Pure Storage is a diversified data storage and management company. It operates via the cloud and on-premise hardware, utilizing its Purity software system to provide enterprise-level services. Features include data encryption, always-on data capture/management, database-as-a-service, AI-as-a-service, and storage. Among the company's many partners is NVIDIA (NASDAQ: NVDA), which is helping to build out the AI enterprise. 

Highlights from the latest earnings report include top- and bottom-line strength driven by increased client count and deepening penetration of services, a theme echoed among leading cloud-based service providers. Among the features that set Pure Storage apart from its competitors is its ability to unify fragmented data sources in a cross-cloud environment. 

The company reported $693 million in net revenue, a 17% gain over last year, beating the consensus estimate by more than 200 basis points. The more significant detail is that the margin widened to leverage strength on the bottom line. The $0.32 in EPS reversed a loss in the previous year and outpaced the consensus by 5000 basis points, leading management to raise guidance and some analysts to raise estimates and stock price targets. The guidance may be cautious because subscription revenue and ARR lead the results. 

Analysts Lead Pure Storage to Fresh Highs 

Pure Storage price action peaked in early June but will likely set another fresh high because the analysts are leading the market. The post-release action is mixed and includes a single downgrade, but it is Equal Weight from Overweight and assumes the market is fairly valued near its current level. The remainder of the revisions were positive, extending the trend and forecasting that this stock will trade closer to $80 or about 25% to 30% upside from the current price action. 

Insiders are selling this stock, but it is not a problem for the market. Insider selling is consistent with companies utilizing share-based compensation; the group still owns roughly 4% of the stock. The bigger worry is institutional activity. The institutions own nearly 85% of the stock and have been selling into the rallies. So far, group rotation has helped support the market trend and lift the stock price, but that could change. The rally will be over when the institutions stop buying on the dip. 

Pure Storage Stock Gains Momentum: Valuation Not a Concern 

The $80 high price target set by analysts is not a 100% gain for the market but would extend a trend that shows strong momentum. The monthly price action chart shows momentum clearly, with rising MACD converging with the latest high. Convergences do not guarantee that a trend will continue, but they do raise the odds considerably, and business fundamentals, not hope, support this trend. In this scenario, a break to new highs would signal a trend continuation that would attract new money and momentum players to help drive the market even higher. 

The valuation is a slight concern, with the stock trading at 40x this year’s earnings outlook and 33.5x next year, but it is factoring in solid growth for the foreseeable future. The valuation falls below 30x within the three-year forecast and to lower levels further out, making it a value among leading tech growth companies.