Cloud-based data warehousing company Snowflake (SNOW) has seen its shares go on an unbelievable run off its May 2021 bottom, now up over 77% from its 52-week low, and a modest 17.6% year-to-date.
Indeed, the last time markets crushed high-multiple growth stocks over higher rates in the 10-year Treasury note, SNOW stock fell under extreme pressure.
Although SNOW and many other frothy technology companies endured a bit of volatility this past month, Snowflake stock appears to be doing a much better job of holding its own.
As tech-focused weakness continues, though, is Snowflake at risk of another meltdown? The stock trades at 109.4 times sales, leaving it vulnerable to a significant valuation reset.
As such, I am mildly bearish on the name despite excitement about its growth prospects. (See Analysts’ Top Stocks on TipRanks)
Fresh off a second quarter that revealed an incredible 104% in year-over-year revenue growth, it’s clear that Snowflake is still in the early innings of what could be a remarkable multi-year growth story.
For a nearly $100-billion company, Snowflake’s top-line growth rate is nothing short of remarkable. With a brilliant leader in Frank Slootman at the helm, there are reasons to believe that Snowflake can continue defying the odds with growth that justifies its pie-in-the-sky multiple, even in the face of broader market headwinds.
While Snowflake has rivals in the data warehousing space, most notably with Amazon (AMZN) Redshift, Snowflake is a solution that allows for greater flexibility across the cloud. It’s this flexibility that can further separate Snowflake from the pack.
Data is becoming an invaluable commodity. Firms are going to need the means to store it without having to encounter potential hurdles down the road. With increasing amounts of data comes the use of analytics, and other tools, to better manage and make use of rich tranches of data.
Snowflake has a profound growth runway that may be unfathomably large. That alone isn’t enough to support a long-term thesis, given the incredibly high multiple. While Snowflake currently has a wide and growing moat, one should not discount the potential for new rivals to move in on the multi-cloud data warehousing space.
It’s a fast-moving industry that’s ripe for disruption, and new entrants will undoubtedly be hungry. For now, nobody quite stacks up well against Snowflake.
This could change with time, though. For that reason, the competitive landscape may be as unfathomable as the growth prospects for Snowflake and its industry.
One thing is clear. The valuation prices in a lot of growth. At this juncture, it’s really hard to tell if investors are overpaying.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, SNOW stock comes in as a Buy. Out of 20 analyst ratings, there are 11 Buy recommendations, and nine Hold recommendations.
The average Snowflake price target is $322.35. Analyst price targets range from a low of $275 per share, to a high of $375 per share.
The stakes are high with Snowflake stock. So too are the potential rewards.
Disclosure: Joey Frenette owned shares of Amazon at the time of publication.
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