Snowflake is Inching Closer Toward a Bargain

Snowflake shares had an outstanding debut in the public market and an equally impressive turnaround from the previous highs.

Not too long ago, shuffled in the bevy of public offerings this past year, shares of the cloud-based data warehousing company IPO’d last September at $120 a share, opened for trading at $245, and six weeks ago hit an intraday top of $429. But the Snowflake [$SNOW] stock has since squandered a third of its value, thanks to a combination of a partial lockup expiration that expanded the number of free-trading shares and some growing investor skepticism about valuation.

Is the stock cheap now? Well, it’s surely cheaper than it was. But the sky-high valuation leaves analysts nervous. On Wednesday, Summit Insights analyst Srini Nandury raised his rating on the stock to Hold from Sell, posting a target price of $300, narrowly above the stock’s current level. Ultimately, he still feels the valuation is far too expensive and added that the principal question for potential investors is the company’s true long-term growth rate, given Snowflake’s unorthodox consumption-based revenue model.

In the past and present, several organizations have managed their data on-premise where the data sources are present in a local database and bound by network firewalls. More recently, the growing pain of a traditional on-premise data warehouse has led to performance issues, workload contentions, etc. One of the most common outcome is longer run times of user reports that eventually could time out or hang up without completion.

“High growth businesses such as Snowflake are a challenge and valuing them is more of an art than a science,” he said in a research note. “We believe the company is disruptive and the technology is sustainable and the differentiation real. However, we believe there are less expensive ways to make money…we are not certain the company can manage to retain high growth rates through calendar 2022. We believe the growth rate has to slow like it did for every company in our coverage universe. Therefore, we look for a better entry point before we can recommend the stock.”

Similarly, Rosenblatt analyst Blair Abernathy picked up coverage of Snowflake with a Neutral rating and $285 price target. Like Nandury, he revered the company’s business model, but advocated investors wait for a more captivating entry point.


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