Here's Why Snowflake (NYSE: SNOW) Is About To Take Off
Even though Snowflake (NYSE: SNOW) reported impressive earnings last December that beat analyst expectations, their shares got caught up in the wave of selling seen across equity markets for much...
Even though Snowflake (NYSE: SNOW) reported impressive earnings last December that beat analyst expectations, their shares got caught up in the wave of selling seen across equity markets for much of the past month or so. Through the end of January, they were down as much as 40% from November's high, and investors must have been scratching their heads at what else was needed to drive a bid.
The company's third-quarter revenue was up 110% year on year, with remaining performance obligations also up an impressive 94% on the year. In addition, the data management giant managed to post a net revenue retention rate of 173%. By any measure, these are stellar headline prints for a $90 billion company to be taking with it into 2022, a year that's forecasted to be a tough one for tech and growth stocks.
But for all that, down shares came in the aftermath of the report, until they put in what is now looking like a low in the final few days of January. Since then, they've popped 25% and look set to take the highway back towards November's highs. More than a few voices on Wall Street are calling this a spectacular buying opportunity, so let's take a look at what could be in store in the coming weeks.
For starters, we have a fresh upgrade from the team over at Morgan Stanley who on Monday of this week moved their rating on Snowflake shares to Overweight. Analyst Keith Weiss wrote in a note to clients that "leveraging the elasticity, scalability, and performance of the public cloud, Snowflake's cloud data platform enables its customers to eliminate data silos, while reducing overhead, complexity, and infrastructure management costs, thereby allowing them to focus on driving and sharing insights from their data". His $390 price target suggests there's at least 30% upside to be had from where shares closed on Tuesday, and were they to hit that would be within touching distance of their November high.
Weiss also pointed out that in the 16 months since Snowflake started trading publicly, their value has only become more appreciated by their customers. The Montana headquartered company is now in a good position to build on this, drive traction, and expand its total addressable market.
His bullishness echoes that of analyst Mark Schappel from Loop Capital, who in the last week of January also upgraded Snowflake shares from Hold to a Buy. Schappel believed the fall seen in shares since December was overdone, and "disconnected" from the fair valuation, and slapped a fresh price target of $370 onto them. In a note to clients, he wrote "as far as 'growth' names are concerned, we believe Snowflake is exposed to one of the largest and fastest-growing total addressable markets, leveraged to favorable secular trends in the cloud data warehousing market, has a solid competitive position and an excellent track record of execution as a public company".
Attractive Entry Point
This should be enough for many investors on the sidelines to consider getting involved, but Snowflake also has the team at William Blair, Barclays, and Citigroup on their side. All three have come out with upgrades and bullish comments on Snowflake's long term potential in the past two months. Barclays thought the selling was overdone by the middle of January, and felt even at that point it gave investors an "attractive entry point". Their peers at Citigroup boosted their price target on the stock to $470 after their earnings in December, which, even after the recent pop in shares, still points to an upside of more than 60% from current levels.
With all that in mind, there's really not a lot to dislike about Snowflake right now. In the face of rising interest rates they're a growth stock that's still churning out triple-digit percentage growth, and more than a few of the sell-side heavyweights have joined the bull camp in recent weeks. In light of the recent bout of selling, you can't help but feel there's a discount to be had at current prices, and a run back towards all time highs in the coming weeks is quite likely.
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