Pure Storage has been on fire lately. In the past six months alone, the company’s stock price has rocketed 69.1%, setting a new 52-week high of $87.14 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy PSTG? Find out in our full research report, it’s free.
Why Are We Positive On PSTG?
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.
1. ARR Surges as Recurring Revenue Flows In
Investors interested in Hardware & Infrastructure companies should track ARR (annual recurring revenue) in addition to reported revenue. This metric shows how much Pure Storage expects to collect from its existing customer base in the next 12 months, giving visibility into its future revenue streams.
Pure Storage’s ARR punched in at $1.79 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 22.4%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s product offerings. Its growth also makes Pure Storage a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
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.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
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.
Final Judgment
These are just a few reasons why Pure Storage is a cream-of-the-crop business services company, and with the recent surge, the stock trades at 42.6× forward P/E (or $87.14 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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