Technology and data storage solutions provider, Pure Storage, Inc. (PSTG - Get Rating), which is based in Mountain View, Calif., delivers software-defined data storage solutions. The stock has gained 14.1% over the past year and 7.7% over the past five days.

However, company insiders have lately been selling shares of PSTG. Approximately 430,380 shares have been sold by two directors so far this year, and the stock price has slumped 13.1% year-to-date.

PSTG is currently trading below its 50-day and 200-day moving averages of $19.24 and $21.32, signaling a downtrend.

So, here’s what we think could shape PSTG’s performance in the near term:

Mixed Financials

PSTG has generated $1.73 billion in revenues over the past year. Its trailing-12-month gross profit came in at $1.17 billion, translating to a 67.89% margin. However, the company failed to break even in the trailing 12 months, as is operating and net loss stood at $238.10 million and $275.69 million, respectively. PSTG’s ROE, ROA, and ROTC stood at negative 37.45%, 6.01%, and 9.94%, respectively.

PSTG’s $1.23 billion of cash and cash equivalent holdings are higher than its $911.25 million total debt. This demonstrates unnecessary interest rate expenses borne on outstanding debt. However, the company has stable cash inflows, as evidenced by its $173.99 million and $117.42 million, respective trailing-12-month net operating cash and levered free cash flows.

PSTG’s relatively high current and quick ratios of 2.66 and 2.33, respectively, indicate inefficient use of short-term resources.

Mixed Growth Story

PSTG’s revenues increased at a 16.4% CAGR over the past three years and 2.7% year-over-year. In addition, the company’s levered free cash increased at a 42.9% CAGR  over the past three years but declined 24.2% over the past year.

Moreover, its tangible book value and total assets declined at a 23.2% rate over the past three years and 57.2% year-over-year.

Consensus Rating and Price Target Indicate Potential Upside

Of the six Wall Street analysts that rated PSTG, four rated it Buy while two rated it Hold. The $12-month $26.40 median price target indicates a 34.4% potential upside from yesterday’s closing price of $19.65. The price targets range from a low of $22.00 to a high of $33.00.

POWR Ratings Reflect Uncertain Prospects

PSTG has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

PSTG has a grade of C for Stability and Quality. The stock’s relatively high1.41  beta is in sync with the Stability grade. In addition, the company’s higher-than-industry gross profit margin and negative ROE justify the neutral Quality grade.

Of the three stocks in the A-rated Technology – Storage industry, PSTG is ranked last.

Beyond what we’ve stated above, we have rated PSTG for Momentum, Value, Growth, and Sentiment. Get all PSTG Ratings here.

Click here to view the top-rated stocks in the Technology – Storage industry.

Bottom Line

PSTG share price declined 3.1% intraday to close yesterday’s trading session at $19.65, at a time when the tech-heavy Nasdaq Composite registered five consecutive days of gains to close at a record 14,840.71 points. Though analysts expect PSTG to see stable growth in revenues and earnings next year, we think investors should wait until its profit margins improve before investing in the stock.

PSTG shares were trading at $19.09 per share on Tuesday afternoon, down $0.56 (-2.85%). Year-to-date, PSTG has declined -15.57%, versus a 17.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

More Resources for the Stocks in this Article