On Thursday, UBS adjusted its price target for Pure Storage (NYSE:PSTG), increasing it to $44 from the previous $38, while keeping a Neutral rating on the stock. The revision followed Pure Storage's fourth-quarter earnings report, which showed a modest revenue beat for Q4:24 and provided a revenue forecast for FY25 that aligns with market expectations at approximately $3.1 billion.
The market's initial reaction to Pure Storage's financial results appeared positive, as indicated by after-market trading activity. However, UBS highlighted concerns regarding the revenue mix both for FY24 and as projected in the FY25 guidance.
According to UBS, when adjusting the revenue metrics to align with Pure Storage's historical capital expenditure-driven business model, the estimated compound annual growth rate (CAGR) for FY24-FY25 would be around 8%. This rate is notably lower than the 26% and 24% product growth seen in FY22 and FY23, respectively, and a decrease from the 37% and 30% subscription growth in those years.
Despite the expectation that total contract value (TCV) sales for products such as Evergreen and One will increase by 50% in FY25, UBS anticipates that Pure Storage's long-term growth rate will likely remain under 10%. Furthermore, UBS suggested that if revenue is adjusted for a $41 million telecom order that was postponed to FY25 from FY24, Pure Storage's growth rate would be approximately 7.3% for FY24 and 8.3% for FY25.
This rate reflects solid growth but does not reach the double-digit expansion implied by the company's guidance.
InvestingPro Insights
Following UBS's revised price target on Pure Storage (NYSE:PSTG), investors may find the latest metrics from InvestingPro particularly insightful. The company's market capitalization stands at a robust $15.85 billion, reflecting investor confidence in its market position. Furthermore, Pure Storage's P/E ratio, although high at 221.68, is projected to become more favorable with an adjusted P/E ratio for the last twelve months as of Q4 2024 at 150.89. This suggests that earnings growth may be on the horizon, aligning with an InvestingPro Tip that net income is expected to grow this year.
Another key point is Pure Storage's Price / Book ratio, which at 10.48 indicates a premium valuation compared to its book value. This metric, coupled with a significant 26.45% price total return over the last three months, underscores the company's strong recent performance in the market. However, it's worth noting that Pure Storage does not pay a dividend, which could influence the investment strategy of income-focused shareholders.
InvestingPro users have access to additional insights that could further inform investment decisions. For instance, there are 13 InvestingPro Tips available for Pure Storage, which include observations such as the company's liquidity position, where liquid assets exceed short term obligations, and the anticipation of profitability this year. For those interested in a deeper dive into Pure Storage's financial health and market potential, using the coupon code PRONEWS24 can provide an extra 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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