Up 24% Over The Last Month, What’s Next For Snowflake Stock?

SNOW: Snowflake logo
SNOW
Snowflake

Cloud data specialist Snowflake stock (NYSE: SNOW) has gained about 24% over the last month, trading at levels of about $148 per share. While the broader markets have recovered a bit over the past month, with the S&P 500 rising by about 6%, there are a couple of factors that are helping Snowflake. Several brokerages have upgraded the stock in recent weeks, citing Snowflake’s strong execution and its more reasonable valuation post the big sell-off earlier year (down 55% year-to-date). Analyst coverage of the stock has also widened a bit. Snowflake’s annual investor day event was also seen quite positively by the markets. The company essentially reiterated its long-term outlook of $10 billion annual revenue by FY’ 29, with gross margins coming in at about 78%. The company also raised its total addressable market estimate for its solutions to $248 billion, considering new workloads such as cybersecurity.

Now, there remain risks as well. The Federal Reserve is expected to continue raising rates at an aggressive pace, as U.S.  inflation has surged to 9.1% over the month of June. Rising rates typically don’t bode well for high-multiple, loss-making growth stocks such as Snowflake, as investors typically opt for stocks with thicker cash flows, trading at reasonable multiples. The probability of the U.S. heading into a recession in the near term appears high, and this could impact the company’s growth rates in the near term.

That said, we still believe that the stock is worth a look at its current market price of about $148 per share. Post the big sell-off this year, Snowflake is valued at about 15x 2023 revenue, which is well below the 50x plus multiples it traded at back in 2021. This could present a decent entry point for a company that is likely to be a prime beneficiary of the continued pivot from on-premise databases to cloud-based warehousing solutions. Snowflake is particularly well-positioned in this market, as its product works across cloud platforms such as Amazon’s AWS, Google Cloud, and Azure, and also offers more flexibility, as it separates storage from computing for the purpose of billing. We value Snowflake stock at about $220 per share, about 50% 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 Jul 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SNOW Return 6% -56% -47%
 S&P 500 Return 1% -20% 71%
 Trefis Multi-Strategy Portfolio 3% -21% 214%

[1] Month-to-date and year-to-date as of 7/17/2022
[2] Cumulative total returns since the end of 2016

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