According to one analyst, one way to secure a more than 20% gain on the stock exchange is to plow some money into shares of Pure Storage (PSTG 1.40%). This market pundit initiated coverage of the specialty tech company in early March with a confident "buy" recommendation. Is it justified? Let's pick it apart a bit and explore.
20%-plus potential gain, says analyst
The new Pure Storage bull is Needham's Mike Cikos. He thinks the stock can go 22% higher from its present level, as he set a price target of $66 per share.
Cikos feels that the company's management has proven itself adept at building its business, at the expense of its peers. That, combined with cutting-edge technology, is pushing the fundamentals higher.
In his research note on the stock, he wrote that the tech company "has persistently gained market share from competitors with its differentiated direct-to-flash storage offering."
Regarding its tech, Cikos added, "While we believe the architectural benefits of Pure Storage's direct-to-flash modules are evident, we highlight the significance of the company's Purity operating system as a single software layer across the portfolio for a consistent user experience."
Too popular for its own good?
It's easy to like Pure Storage these days. The company notched convincing beats on both the top and bottom lines in its recently reported fourth quarter of fiscal 2024. Better, it guided for annual increases in revenue and operating income in the low double-digit percentage rates this current fiscal year (2025).
Pure Storage feels like a company headed in the right direction, yet its hot popularity makes me question the stock's potential upside. It's now trading at a forward P/E of more than 35, which is awfully high for a company positioned for decent, yet not spectacular, profit growth. This is a successful business with an effective strategy, but I'm not convinced it's a buy at roughly $55 per share.
