Snowflake Shares Rally 69% As Revenue Beats Spark Fresh Debate on Future Value

Are you on the fence about Snowflake, trying to figure out whether it is the right moment to buy, hold, or cash out? You are not alone, and the market has not made the answer easy. Over the past year, the stock has swung dramatically. It is up almost 69% in the past 12 months, yet it dipped more than 8% in the past 30 days and is just about flat over the last three months. These moves come at a time when Snowflake continues to deliver double-digit annual revenue growth, but remains unprofitable, which keeps the debate around its true value very much alive.

Recently, investor excitement was reignited by better-than-expected revenue and hints of improving margins. However, some have become more cautious following shifts in broader tech sentiment and risk appetite. Even with these mixed signals, the stock still trades at a 25% discount to its analyst price target. This suggests at least some room for optimism if you believe in Snowflake’s growth story.

So, how should you value a fast-growing, tech-forward company like this, especially when traditional criteria do not always tell the whole story? According to our checks, Snowflake is undervalued in 3 out of 6 core categories, giving it a valuation score of 3. In the next section, we will break down what goes into this score and how each valuation approach stacks up for Snowflake. But stay tuned, as later on I will share what I believe is the most powerful way to judge its true worth.

Snowflake delivered 69.0% returns over the last year. See how this stacks up to the rest of the IT industry.

Approach 1: Snowflake Cash Flows

A Discounted Cash Flow (DCF) model estimates a company's value by projecting its future free cash flows and discounting them back to today's value. This approach helps investors determine what a business could be worth based on its ability to generate cash over time.

For Snowflake, the most recent Free Cash Flow stands at $724.7 million. Analysts expect robust growth ahead, with projections reaching $4.0 billion by 2030. These forecasts suggest significant expansion in the company's cash-generating abilities over the coming years.

After applying a two-stage DCF method using these projections, the model calculates Snowflake’s fair value per share at $260.66. Compared to the current share price, this reflects a 25.3% undervaluation, indicating that the stock is trading well below its intrinsic worth based on future cash flow potential.

In short, the DCF tells a compelling story for long-term believers in Snowflake’s growth trajectory and implies notable upside for patient investors.

Result: UNDERVALUED

Our DCF analysis suggests Snowflake is undervalued by 25.3%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Snowflake Price vs Sales

The Price-to-Sales (P/S) ratio is often used to value high-growth tech companies like Snowflake, particularly when profits are not yet consistent. This metric is especially helpful because it links a company’s value to its revenue, which can serve as a more stable benchmark during periods of rapid expansion or when earnings are negative.

Market expectations for growth and perceived risks generally influence what is considered a “normal” or fair P/S ratio. Companies with strong growth prospects tend to have higher ratios, while firms facing competitive pressures or lower margins usually see lower multiples.

Currently, Snowflake’s P/S ratio stands at 16.92x. This is significantly above the IT industry average of 2.62x, but is slightly below the 18.56x peer average. For additional perspective, Simply Wall St’s proprietary Fair Ratio, which incorporates Snowflake’s growth, industry positioning, profitability, and risk, calculates a Fair P/S Ratio of 14.10x for Snowflake.

Considering all these numbers, Snowflake is trading at a P/S multiple that is moderately higher than the Fair Ratio. This suggests the stock is somewhat overvalued at current levels based on its sales relative to typical expectations for a company of its profile.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Snowflake Narrative

Numbers alone rarely tell the full story of a company’s future, which is why investment “Narratives” have become a more powerful way to make decisions. A Narrative is your story, connecting where you think a company like Snowflake is headed, your estimates for future revenue and profits, and what you believe its fair value should be.

Unlike static valuation models, Narratives turn your own perspective into clear financial forecasts and a price target. This approach lets you see how your outlook compares with market prices. On the Simply Wall St platform, Narratives are easy to build and compare, and are also dynamic. They automatically update as new news or earnings reports are released, making them a flexible tool no matter your experience level.

By comparing your Narrative’s Fair Value with the current share price, you can more confidently decide whether to buy, hold, or sell, knowing the reasoning is based on your specific view of Snowflake’s future. For example, investors reviewing Snowflake currently see a wide range of fair values, with some estimating as high as $440.00 and others as cautious as $150.00. This demonstrates just how much stories can differ, even when based on the same data.

Do you think there's more to the story for Snowflake? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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