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Invest in the Potential of Snowflake Stock

A year after its rocky initial public offering (IPO), the stock of cloud computing company Snowflake (NYSE:SNOW) is breaking out in a big way.

Snowflake (SNOW) IPO on the NYSE

Source: rblfmr / Shutterstock.com

The Bozeman, Montana-based company, which provides cloud computing data warehousing services and is named after its founders’ love of winter sports, has seen its share price rise about 45% over the past six months. It closed yesterday at $339.74. During the second week of October, SNOW stock jumped 7% higher, and it has been in a sharp uptrend since the end of August.

The rally is a sharp reversal for SNOW stock, which skyrocketed 78% in the three months immediately after its September 2020 IPO before collapsing and falling 57% to $184.71 a share — well below the price it was at when it made its market debut to much fanfare (even notoriously conservative and technology-averse investor Warren Buffett got in on Snowflake’s IPO).

The question now is whether the current rally is sustainable or if SNOW stock is due for another pullback after its latest bull run.

Big Revenue Growth

By most accounts, Snowflake is in the right business at the right time. Not only do private-sector companies and public-sector governments need more storage capacity for the reams of digital data that continues to grow exponentially, but they also need to analyze and understand the data in order to monetize it.

This demand plays right into Snowflake’s cloud-based data storage and analytics offerings. And that is why analysts who cover Snowflake forecast that the company’s revenue will multiply tenfold over the next five years, swelling to $5.6 billion by 2026 from the $592 million of sales that it recorded in 2020.

It is that kind of growth that has attracted legendary investors such as Buffett to SNOW stock, and that’s why Wall Street remains bullish on the company’s prospects.

Partnerships and Earnings

The current rally of SNOW stock accelerated after the company announced a new partnership with UiPath (NYSE:PATH) that will add UiPath’s insights to Snowflake’s existing platform. The companies say that combining UiPath with Snowflake’s enterprise-grade secure data-sharing capabilities will lead to faster data-processing times and enable Snowflake to perform even deeper long-term data analysis.

The UiPath partnership should help Snowflake successfully fulfill the $1.5 billion of unfulfilled contracts that it currently has on its books. Those are lucrative contracts that should help drive its growth in the future.

As shown by Snowflake’s financial results, the company’s growth has been strong this year. At the end of August, the company reported that its revenue had risen 103% year-over-year in the second quarter.

It was the third consecutive quarter in which Snowflake reported that its revenue had grown more than 100% YOY. Snowflake also raised its forward guidance in May of this year, saying it now expects to generate revenue of $1.02 billion to $1.04 billion. That implies 86% YOY growth.

While impressive, the fact that Snowflake remains unprofitable seems to be the one drag on the company’s shares. SNOW stock fell nearly 10% after its Q1 results, issued in May, showed that the company’s net loss had ballooned to $203.2 million from $93.6 million during the same period a year earlier.

Buy SNOW Stock for the Long-Term

In May, investment bank Goldman Sachs (NYSE:GSupgraded its rating on Snowflake’s stock to “buy” from “hold,” saying the company’s long-term prospects should support further share price appreciation.

“We see a path towards outperformance, as we believe the durability of growth is not fully reflected in the company’s current valuation,” wrote Goldman Sachs in its evaluation of SNOW stock.

The bullish note from Goldman Sachs seems to be echoed on all of Wall Street, where 15 professional analysts currently have “buy” ratings on the shares. There are no “sell” ratings on the stock.

With its continued earnings growth and potential for future gains, it is easy to see why investors should buy Snowflake’s stock and hold it over the long-term. Profitability is on the horizon for the company, and its customer base is expanding by leaps and bounds. Given everything that is working in its favor, SNOW stock is a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2021/10/invest-in-the-potential-of-snowflake-stock/.

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