At first glance, the fallout for Pure Storage (PSTG) should inspire dread. Amid a shaky environment for the technology sector and investors digesting broader economic concerns, PSTG stock isn’t exactly operating with the wind at its back. Plus, it’s difficult to have confidence in a security that has lost nearly 20% of value over a one-week period.
Going back to January 2019, there have only been 13 times when PSTG stock incurred a loss between 10% and 20%. Therefore, it’s not shocking that investors are waiting to see what happens next.
Circumstances seemed relatively normal up until the disclosure of Pure Storage’s fourth-quarter earnings report. On paper, the headline results were solid. Adjusted earnings per share landed at 45 cents on revenue of $879.8 million. These metrics beat Wall Street’s consensus estimates of 42 cents EPS on sales of $869.2 million.
However, Motley Fool pointed out that on a year-over-year basis, adjusted EPS declined 10%, with the slip largely due to gross margin erosion. In my opinion, it wasn’t that horrendous of a situation, which is why investors may be missing the forest for the trees. The metric landed at 69.2%, down from 71.9% in the previous quarter and below the expected 73.7%.
Looking ahead to Q1, Pure Storage is guiding for sales to reach about $770 million. For the current fiscal year (2026), analysts are looking for sales to reach $3.52 billion, up 11.09% from the prior year. That’s right in line with historical trends. It would also mean that on a forward basis, PSTG stock would be trading at 4.86X sales. That’s almost exactly the metric that we saw around this period last year.
All things considered, we have a relevant player in the enterprise-grade flash storage solutions sector, which is critical for artificial intelligence. To me, PSTG stock would seem to qualify as a discount rather than a warning sign.
Unusual Options Activity Signals a Possible Opportunity in PSTG Stock
While the big action occurred on Thursday in response to Wednesday’s post-closing-bell earnings disclosure, PSTG stock nevertheless made it on the list of Barchart’s unusual options volume screener to close out last week.
Specifically, total volume reached 14,084 contracts against an open interest reading of 65,559 contracts. Monday’s volume represented a 321.68% jump from the trailing one-month average metric. However, call volume was only 3,405 contracts while put volume stood at 10,679 contracts, yielding a put/call ratio of 3.14.
To be sure, options flow — which focuses exclusively on big block transactions likely placed by institutional investors — revealed negative sentiment on Friday. However, it should be noted that on Thursday, net trade sentiment clocked in at $859,900, thereby significantly favoring the bulls. In other words, smart money investors who saw the post-earnings fallout began buying the dip.
Such acquisitive behavior is in line with prior trends. Stepping back a moment, using data since January 2019, a position entered at the beginning of the week has a 51.71% chance of rising by the end of it. Over an eight-week period, this baseline probability rises to just under 58%. Put another way, PSTG stock enjoys an upward bias.
However, pricing behaviors often change in response to unusual fluctuations in the fear-greed continuum. Following extreme volatility (when PSTG loses between 10% and 20% in a one-week period), the subsequent three weeks see very poor long odds — below 31%. However, in the fourth and fifth weeks, there is a tendency for the long odds to rise sharply to 69.23%.
Using a guided Monte Carlo analysis incorporating market realistic pricing dynamics, a 10,000-run simulation revealed the possibility of PSTG stock rising to $58.55 over the next eight weeks. Based on similar circumstances, this projection might even be conservative.
Potential Bullish Trading Opportunity
For long-term buy-and-hold investors, the present malaise in PSTG stock could be a chance to pick up shares on the cheap. However, options traders could potentially extract robust returns.
For the next available options chain expiring March 21, aggressive speculators may consider the 50/55 bull call spread. This transaction involves buying the $50 call and simultaneously selling the $55 call. The trader uses the proceeds from the short call sale to partially offset the debit paid for the long call.
For the riskiest trade, one may consider the 55/60 bull call spread for the options chain expiring April 17. If circumstances move just right, PSTG stock could potentially rise to the $60 strike price at expiration. This would allow the speculator to collect the maximum payout of nearly 144%.
