Pacific Crest: Time To Buy Pure Storage

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  • Pure Storage Inc PSTG shares are up 6 percent in the last one month, after hitting a low of $15.93 on October 8.
  • Pacific Crest’s Brent Bracelin initiated coverage of the company with an Overweight rating and a price target of $24.
  • While the company address a large market, it has a differentiated technology and unique approach, Bracelin noted.

The external storage TAM is estimated to be worth $24 million. Every 5 percent share gain in this market adds $1.2 billion to Pure Storage’s product revenue, analyst Brent Bracelin said.

“Despite high execution risk with little margin for error, we think market conditions are ideal to build a next-generation storage franchise, warranting heavy investments in the short run,” Bracelin wrote.

Pure Storage’s revenue has grown 50 times over the past 2.5 years, from $6 million in FY13 to an annualized rate of $338 million in the July quarter of 2015.

Bracelin believes that the “impressive ramp” can be attributed to the company’s differentiated software and unique approach, “which was founded in simplicity and low cost with an aim to make flash simple and affordable via smart software design and algorithms.”

Investments needed to trigger revenue growth of more than 50 percent per annum for the next three years would continue to expert pressure on the company’s operating results. The analyst expects Pure Storage’s grow to $1 billion in 2017, from $6 million in 2012, with profitability coming in late 2018.

“Significant operating losses and execution risks through 2017 make PSTG a high-risk investment, in our view. The main appeal would be if, as enterprises now shift to cloud and flash through the 2020s, Pure Storage can replicate EMC's success during the client/server era in the 1990s,” Bracelin added.

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Posted In: Analyst ColorLong IdeasInitiationAnalyst RatingsTrading IdeasBrent BracelinPacific Crest
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