Warren Buffett is well-known for his value-focused approach to picking stocks. Accordingly, when the Oracle of Omaha invests in a company like Snowflake (SNOW), investors take notice.
After all, high-flying technology stocks are not Mr. Buffett’s forte. Granted, this purchase was likely made by one of Warren Buffett’s investment managers on his team (who have an excellent track record as well). However, to get the stamp of approval for Mr. Buffett, the pitch would have to be strong.
Indeed, those interested in Snowflake certainly have reason to be excited. Let’s take a look at what Snowflake does, and why world-class investors like Warren Buffett are jumping aboard. (See Snowflake stock chart on TipRanks)
Why SNOW Stock Is On the Move
Snowflake’s business model as a cloud-based data platform puts this company in the cross-hairs of hyper-growth investors. Indeed, cloud computing is the place where many investors want to be right now. As a growing competitor to other major players in the cloud space such as Amazon (AMZN) and Microsoft (MSFT), the potential upside of this stock is huge.
Accordingly, it’s no surprise that Snowflake has outperformed since its September 2020 IPO. The company’s reference price of $120 per share was quickly eclipsed, with shares more than doubling on its debut in the market. In fact, the lowest price SNOW stock has traded at, since its IPO, was just under $185 in May. Since then, shares have quickly climbed back to close to the $250 level, at the time of writing.
Indeed, as a cloud computing player providing an ecosystem for customers to consolidate data and generate meaningful business insights, Snowflake is a platform that’s generating a lot of attention. The growth trajectory with this stock is impressive, and investors appear to like the underlying business model of this company.
Given the fact that Snowflake is not yet profitable, investors like Warren Buffett are placing a lot of value on the future earnings this company can generate. Indeed, this is an unusual pick for such a conservative value investor. However, it’s clear Mr. Buffett sees things differently than the average investor – that’s why he is so successful.
Financial Results Stellar
While Snowflake isn’t yet profitable, the company is growing fast. Indeed, Snowflake reported revenue growth of 110% year-over-year in its most recent quarter. Product sales are expected to double, and the company’s cash flow is actually positive, at around $20 million.
For an early stage company like this, these numbers are very encouraging. Indeed, triple-digit growth is hard to find these days. For companies like Snowflake in the data-driven decision making business, as well as the cloud computing business, there’s a lot to like about this growth trajectory being sustainable. Analysts remain bullish on Snowflake’s prospects, and for good reason. That is despite a price-to-sales ratio which currently stands at more than 102.
What Analysts Are Saying About SNOW Stock
According to TipRanks’ analyst rating consensus, SNOW stock comes in as a Moderate Buy. Out of 20 analyst ratings, there are 11 Buy recommendations, and 9 Hold recommendations.
As for price targets, the average Snowflake analyst price target is $279.33. Analyst price targets range from a low of $240.00 per share to a high of $320.00 per share.
Bottom Line
Snowflake’s valuation is high, and some serious concerns around the potential for inflation and rising interest rates to eat into the valuations of hyper-growth stocks are likely to persist.
However, investors in Snowflake are betting the company’s growth rate will continue, allowing the company to grow into this valuation.
Buffett has stated he regrets missing out on the great rallies in certain stocks like Amazon. It appears he’s not going to do that again, and Snowflake is one of his top ideas.
For those looking to rip a page out of Warren Buffett’s book, this is a great stock to consider today.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
