Why Pure Storage Stock Is Plummeting Today

Pure Storage (NYSE: PSTG) stock is falling in Thursday's trading following the company's recent fourth-quarter report. The company's share price was down 10.9% as of 2:30 p.m. ET.

Pure Storage published its Q4 results after the market closed yesterday and actually posted results that came in better than Wall Street had anticipated. But the company's margins showed signs of weakening, and management's forward guidance disappointed the market.

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Pure Storage stock slumps as Q4 margins disappoint

Pure Storage reported non-GAAP (adjusted) earnings per share of $0.45 on sales of $879.8 million in the fourth quarter. The performance came in significantly better than the average Wall Street analyst estimate, which had called for earnings per share of $0.42 on sales of roughly $869.2 million.

Pure Storage's revenue increased 11% year over year in the period, but adjusted earnings per share actually declined 10%. The slip in profitability was largely due to erosion of the company's gross margin. The business posted a gross margin of 69.2% in the period, down from the 71.9% margin it posted in the previous quarter. The average analyst estimate had called for the business to post a gross margin of 73.7% in the period.

What's next for Pure Storage?

For the first quarter, Pure Storage is guiding for sales of roughly $770 million, suggesting year-over-year sales growth of around 11%. Meanwhile, the company anticipates adjusted operating income of $80 million for the period, good for a margin of 10.4%.

Looking ahead to the full-year period, management is targeting revenue of $3.51 billion. If the business were to deliver on that target, it would once again mean sales growth of 11%. Adjusted operating income for the year is projected to come in at $595 million, representing a margin of 17%.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pure Storage. The Motley Fool has a disclosure policy.