Shares of Pure Storage (PSTG 1.54%) stock climbed 36.1% in March after a fantastic fourth-quarter earnings report. The company posted quarterly revenue of $708 million, representing 40% growth from the prior year. It also achieved its first profitable quarter, which was well above analyst expectations.
Pure Storage smashed expectations and pleased investors. It attributed much of this success to higher-than-anticipated sales to Meta Platforms (META -0.62%). Even if this is a one-off boon, the company still reported 30% growth in remaining performance obligations (RPO), an important metric that measures future sales that have been booked but not recognized. Pure Storage's guidance calls for 20% sales growth next year and adjusted operating income of around $300 million. The company looks set to continue expanding rapidly.
Pure Storage develops data storage hardware and software, which is a good business to occupy these days. Around two-thirds of its revenue comes from the sale of flash storage hardware. It also generates significant cash flow from subscriptions to its storage-as-a-service platform. This allows its customers to enjoy a pay-as-you-go type of arrangement, which improves financial efficiency in their analytics, security, and other software operations.
The growth catalysts for Pure Storage are clear, and the company has impressed the market with its performance in its growth industry. As uncertainty clouded the stock market and many businesses published lukewarm outlooks, investors were eager to jump on board this success story. The growth stock sell-off crushed Pure Storage in January and February, so this rebound based on fundamental performance was encouraging.
Pure Storage operates in an extremely competitive market. It has a handful of direct niche competitors, and it also goes head-to-head with some notable tech giants with more diversified businesses. Pure Storage is well regarded by customers and market analysts, having been named a leader by Gartner for seven years in a row. Still, its economic moat will always be challenged by constant innovation from rivals.
The stock's 44 forward PE ratio isn't particularly high for a growth stock, and it results in a fairly normal PEG ratio just above 2. Pure Storage produces positive free cash flow along with stable gross margin, and it's got an excellent growth forecast. The competitive nature of its market creates risk for shareholders, so keep that in mind. However, its fundamentals should be strong enough to produce big returns for shareholders if it can remain on this growth trajectory.