Snowflake Stock Price Falls 38% – Time to Buy SNOW Stock?

Snowflake stock fell 4.6% on Friday and is now down 38% from its 52-week highs. What’s the forecast for SNOW stock and should you buy it now?

Snowflake went public last year and became the largest software IPO ever. The company raised the IPO price several times during the IPO process, a reflection of the strong investor appetite for the stock. Even Warren Buffett’s Berkshire Hathaway co-invested in the IPO along with Salesforce. Berkshire’s investment in the company especially baffled markets given Buffett’s views on tech stocks as well as IPOs.

SNOW stock technical analysis

Snowflake stock has a strong support at the 50-day SMA and is currently trading above the price channel.        The stock also trades above the 100-day SMA which is a bullish indicator. The stock has a 14-day RSI (relative strength index) of 46.6 which is a neutral indicator and signals neither overbought nor oversold positions.

67% of all retail investor accounts lose money when trading CFDs with this provider

Snowflake recent developments

SNOW would release its fiscal second-quarter 2022 earnings on 25 August. Analysts polled by TIKR expect the company to report revenues of $256.76 million in the quarter, as compared to $228.9 million in the previous quarter. However, its losses are also expected to swell in the quarter and analysts are projecting an EBITDA loss of $40.7 million in the quarter as compared to $33 million in the previous quarter.

Meanwhile, the estimates are higher than the company’s guidance. During the fiscal first-quarter earnings call, SNOW had given a fiscal second-quarter revenue guidance of $235-$240 million. That said, Snowflake provides conservative guidance and eventually ends up posting better than expected performance.

Snowflake stock forecast

Snowflake’s median target price of $282.50 is a premium of 5.9% over current prices. Its lowest target price of $240 is a discount of 10% while the highest target price of $515 represents a potential upside of over 93% over the next 12 months. Wall Street analysts meanwhile have a mixed forecast on the stock. Of the 30 analysts polled by CNN Business, 14 have rated SNOW as a buy while 15 analysts have given it a hold rating. One analyst has a sell or equivalent rating on the stock.

SNOW stock analyst action

There hasn’t been any major analyst action on Snowflake stock in August. In July, BTIG Research had set the stock’s target price at $264.62 while Monness Crespi & Hardt had initiated the coverage with a neutral rating. After SNOW releases its earnings this week and provides the updated guidance, Wall Street analysts might revise their ratings upwards.

SNOW stock long term forecast

Looking at the long-term picture, Snowflake expects to post product revenues of $10 billion by the fiscal year 2029 which would be similar to the calendar year 2028. This would mean a revenue growth CAGR of almost 44%. Currently, its annual revenue run rate is below $1 billion but the company would soon reach the milestone considering the high growth. Analysts expect the company’s revenues to be more than $1 billion in this fiscal year.

The company has been posting massive losses but is working to address the perennial losses. In the first-quarter earnings call it said that it has renegotiated with cloud providers and also implemented a change in storage compression. The CFO Mike Scarpelli said that SNOW is working on expanding the margins in the long term and achieve profitability.

Snowflake is a long-term play

Meanwhile, cloud is among the most promising investing themes for the long term, and SNOW is well placed in the industry. Analysts expect Snowflake’s revenues to rise 88% YoY to $1.15 billion in this fiscal year. The revenues are forecast to rise 64% in the next fiscal year to $1.83 billion. The management has also been pitching Snowflake stock as a long-term investment proposition.

Speaking with Jim Cramer, SNOW CEO Frank Slootman had said “Our business is really going to conduct itself really over considerable, long periods of time.” He added, “That’s sort of the message to investors to really understand we’re signing on here for a journey that’s five to 10 years.”

“These are big, big changes that we are experiencing in the marketplace, and we’re just super happy to be in the middle of that and be an enabler of that,” added Slootman, commenting on the growth in the cloud industry.

SNOW stock valuation

Snowflake stock trades at an NTM (next-12 months) EV-to-sales multiple of 58.7x. While the multiples have corrected from last year’s peak, it is among the most expensive companies based on the metric. If we value it based on the fiscal year 2029 revenue projections, we get a price-to-sales multiple of around 7.9x.

Overall, while SNOW stock could remain volatile in the short term, it looks like a good long-term bet. Looking at the secular growth trends in the cloud industry, the company could continue to see explosive growth over the next decade. While the stock could remain out of favor with investors amid fears of a rate hike, that make growth names like SNOW less attractive, the stock should recover in the long term.

67% of all retail investor accounts lose money when trading CFDs with this provider