Snowflake Stock May Still Be Too Pricey, Even After the Dip

Snowflake Stock May Still Be Too Pricey, Even After the Dip

Snowflake Stock May Still Be Too Pricey, Even After the Dip

Software firm Snowflake has seen shares tumble. Needham analyst Jack Andrews says it’s still not time to buy.


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Snowflake

stock has had a wild ride. The fast-growing cloud-based data-warehouse software company went public last September at $120 a share, opened for trading at $245, and at one point late last year briefly traded as high as $429. Hope you weren’t the buyer—the stock has since been in full-scale retreat. Snowflake stock on Monday is off 2.1%, to $226.65.

So should you buy Snowflake (ticker: SNOW) stock now?  Not yet, says Needham analyst
Jack Andrews.

Andrews picked up coverage of Snowflake stock on Monday with a Hold rating. And the bottom line is that while he is impressed with Snowflake’s fundamental story, he’s concerned about valuation, even after the stock’s nearly 50% retreat from all-time highs.

“Snowflake delivers a cloud-native data warehouse that solves the performance and scalability limitations of on-premise systems,” he writes in a research note. “Despite our positive view on Snowflake’s fundamentals and what appears to be a significant runway of market opportunity…we are initiating coverage with a Hold rating solely based on valuation.” Andrews does not provide a target price for Snowflake stock, but his commentary suggests that he believes a far lower valuation would be more appropriate.

“Snowflake’s current valuation accounts for an already-optimistic scenario and fairly incorporates numerous investment positives,” he writes, adding his analysis suggests the market is pricing in revenue growth of almost 40% a year for the next decade, which would make it one of the biggest public software companies. He notes that the stock trades at a multiple of about 35 times forward revenue, about double that of other high-growth-software companies.

“Snowflake’s value proposition of democratizing data warehouses across new business units should remain healthy and continue for several years,” he adds. “However, we believe at its current valuation Snowflake must continue to deliver upon the highest tiers of growth in software, which may become more difficult as it pursues data warehouse migrations and as competitors’ re-architected solutions gain further market traction.”

Write to Eric J. Savitz at eric.savitz@barrons.com