A recent upgrade at Canaccord Genuity (CCORF) meant big moves for cloud computing operation Snowflake (SNOW). The company gained 3.6% in Wednesday’s premarket trading. Those gains continued into Wednesday morning’s trading as well, at one point approaching around 6%.
Despite the fact that the company is down about 65% in 2022 so far, Canaccord likes what it sees here. Interestingly, so do I, and I’m bullish on Snowflake. There’s a solid product line in here, and when it comes to cloud computing these days, it’s often a good investment. Best of all, in this case, that rout the company has already seen could end up working in its favor.
It’s been a rough year for Snowflake. A slow climb in the latter half of 2021 broke in November, right as the company hit its height for the year at just over $400 per share. The resulting plunge down to around $120 per share has continued to this day.
Canaccord Genuity’s upgrade, however, prompted a whole new hope for the company. Canaccord’s David Hynes Jr. upgraded Snowflake from Hold to Buy, and his price target for the stock remains unchanged at $185. He noted that the huge plunge the company took for most of 2022 opened up a solid entry point for new investors.
Better yet, this cloud company has several new products coming out that should be in heavy demand. It’s also in an industry that, in general, has growing demand. Further, Snowflake reiterated earlier financial guidance, so those two factors together made Canaccord more confident.
Wall Street’s Take
Turning to Wall Street, Snowflake has a Moderate Buy consensus rating. That’s based on 21 Buys, six Holds, and one Sell assigned in the past three months. The average Snowflake price target of $192.72 implies 59.8% upside potential.
Analyst price targets range from a low of $120 per share to a high of $295 per share.
Investor Sentiment is Proving Skeptical
Despite Canaccord Genuity’s assessment and analysts’ comparatively positive view, investor sentiment is significantly more skeptical. In fact, on TipRanks, Snowflake currently carries a Smart Score of 4 out of 10. That’s the lowest level of “neutral,” making it a bit more likely to underperform the broader market than outperform it.
Hedge fund involvement with Snowflake, as measured by the TipRanks 13-F Tracker, seems to agree. Hedge funds have been continually pulling back on their Snowflake investments since March 2021. The latest quarter proved no exception, as hedge funds dropped 15 million shares in the space between December 2021 and March 2022.
Meanwhile, insider trading at Snowflake doesn’t reveal much confidence either. For the last three months, Sell transactions among insiders outweighed Buy transactions by six to one. Going back over the whole year is even worse. Sell transactions again led Buy transactions, but this time by 71 to 17.
As for retail investors who hold portfolios on TipRanks, this is about the only bright spot for the company. TipRanks portfolios containing Snowflake stock were up 0.2% in the last seven days and up 2.4% in the last 30 days.
Meanwhile, Snowflake’s dividend history doesn’t exist, so it’s a non-factor here. It does, however, demonstrate a focus on the share price as opposed to pursuing income investors. Given how high the stock price has been in the last year, it even worked, at least for a while.
Potentially One Big Opportunity in the Making
When Canaccord Genuity called SNOW stock attractively priced, it had a point. Remember that this is a company in cloud computing, and cloud computing is a very big deal right now. Remember also what the price was back in November.
With so many businesses allowing remote work or at least moving to some kind of hybrid program, cloud-based systems are going to be vital, going forward. Those cloud-based systems are going to be the basis of getting remote work running to its fullest.
Recently, Snowflake showed off some of those new cloud-based systems, and it’s not surprising that analysts took notice. On the list included new systems like Snowflake Unistore, which provides a way to better de-silo data.
For those not familiar with the term, “siloing” data refers to the practice that businesses have had for years, in which one division’s data is commonly kept within that division. The marketing department has all the marketing data, the accounting department the accounting data, and so on.
Attempts to de-silo that data have great potential. If, for example, marketing knew what profit and loss margins looked like for the last 10 years, they could adjust their operations accordingly.
However, de-siloing data comes with risk. The more access there is to data, the more chance there is for data to be lost, stolen, or otherwise misused. Plus, there’s the issue of internal politics. Improved access to data may make some functions, or even departments, seem less valuable.
That’s just the start for Snowflake’s new releases, too. These features are likely to prove valuable to businesses and thus better ensure a steady line of customers coming back for more. It also should help Snowflake establish a reputation for a quality product and improve sales down the line.
Yes, the macroeconomic picture won’t be much help to Snowflake right now. Businesses that have already gone this long without de-siloing may not be in a hurry to step up suddenly. Yet, if Snowflake can make a case that the value of its de-siloing tools—among others—is better than the value of holding cash, then that could turn things around.
Concluding Views
Snowflake will have a bit of a challenge in front of it. It’s got to convince businesses that a largely new way of doing business will be valuable. Worse, it’s got to do so amid a terrible macroeconomic environment.
At a time when businesses are perhaps most eager to circle the wagons and protect what they already have, Snowflake will have to convince businesses to do something completely new and different.
That’s not an easy thing to do. Nor will it be simple to do so. Snowflake is going to need plenty of sales and marketing muscle to pull this off. Nonetheless, if it does, it might be able to start a ball rolling that will get the stock back up to where it was last November.
Yes, Snowflake stock is expensive. Any stock with a three-figure price tag is going to put off some potential investors. However, Snowflake also may be holding the next big business paradigm in its hands. Throw in the fact that Snowflake is currently trading below even its lowest price targets, and there’s a real potential for a win here.
That’s why I’m bullish on Snowflake. Snowflake’s task before it is enormous and difficult, but the payoff here is potentially staggering. Businesses that can change entire paradigms generally don’t do so without hefty gains in their share prices.
