Should You Buy, Sell Or Hold Snowflake Stock At $140

SNOW: Snowflake logo
SNOW
Snowflake

Cloud-based data warehousing specialist Snowflake stock (NYSE: SNOW) has declined by 55% year-to-date, underperforming the Nasdaq-100, which remains down 28% over the same period. The broader cloud software space has taken a beating this year, as Covid-19 demand tailwinds ease a bit, while rising interest rates and surging inflation have also made investors reduce allocation to high-growth companies. Snowflake’s guidance for FY’23 was also lighter than expected, with the company guiding product revenues of about $1.88 billion to $1.90 billion, a growth of 65% to 67% versus last year, compared to 100% plus levels seen in FY’22. While the projected growth for Snowflake isn’t too bad, even a slight deviation from expectations can result in a big correction in the stock price, considering that it was one of the highest valued stocks in the cloud computing space. Separately, the stock has also faced pressure as Wall Street analysts have been trimming price forecasts in recent months with some large investors including Salesforce.com selling stakes in the company.

So is Snowflake stock a good value at current levels of $140 per share? Now, Snowflake’s multiples are still high, with the company trading at over 20x forward revenue.  This makes the company, which remains unprofitable, vulnerable in an environment where investors are increasingly seeking safety in cash flows and higher earnings yields. However, in terms of fundamentals, the long-term outlook for Snowflake looks solid, driven by the continued pivot from on-premise databases to cloud-based warehousing solutions and higher spending by its customers. Snowflake’s product has an advantage over rivals, given its decoupled architecture which separates storage from computing, with customers picking a cloud service provider of their choice. Snowflake previously indicated that its product sales could grow to almost $10 billion by 2029 and the company’s margins have also been improving, meaning that it could be solidly profitable in the long run. Snowflake also appears to typically be conservative with its forecasts. For example, for the fiscal year FY’22, the company initially guided for just about 81% to 84% product revenue growth, but ended up growing by about 106%. This could potentially indicate that the company could surprise on the upside over FY’23 as well. We could get a sense of this when the company reports its Q1 FY’23 earnings, which are due on Wednesday.

We value Snowflake stock at about $220 per share, about 55% ahead of the current market price. See our analysis  Snowflake Valuation: Is SNOW Stock Expensive Or Cheap? for more details. See our analysis of Snowflake Revenue for more details on Snowflake’s business model and how its revenues are expected to trend.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 

Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SNOW Return -21% -60% -52%
 S&P 500 Return -5% -18%  76%
 Trefis Multi-Strategy Portfolio -6% -22% 208%
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[1] Month-to-date and year-to-date as of 5/23/2022
[2] Cumulative total returns since the end of 2016

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