Like most tech companies, Snowflake (NYSE:SNOW) stock has struggled to find its footing in 2022. Shares of the cloud computing-based data warehousing company are down 46% year-to-date as the bulls work to take the reigns. However, there is evidence that shares have bottomed out or are close to the bottom.
On Monday, Snowflake received a big boost when New York-based Wolfe Research initiated coverage of Snowflake with an outperform rating. The company believes that Snowflake has a solid management team. It also cites the company’s ability to scale as a reason for its optimistic assessment.
Snowflake provides a cloud-based database that can store and analyze data for enterprise customers. In 2021, Snowflake made $592 million in revenue — a whopping 124% increase from the prior-year period. For the fourth quarter, product revenue was $359.6 million — an increase of 102% from the previous year.
However, this has mattered very little to investors. Stocks in the tech sector continue to move down, as interest rates continue to rise in the wake of inflation globally.
Revenue is still growing rapidly. And after falling 55.5% from its all-time high of $405 per share, SNOW stock has merit as a value play.
Go Long With SNOW Stock
Companies are using cloud computing services to allow them to crunch the masses of data they need for the insights they crave. Snowflake’s services enable powerful data analysis, getting customers closer to important discoveries with less hassle.
Snowflake is not a SaaS company but rather operates on a consumption-based revenue stream. It charges per gigabyte of data crunched, with pricing leveled off for businesses that need more storage. The company has reached an annual revenue run-rate in excess of $1 billion and is turning profitable “adjusted” or non-GAAP profit. This growth illustrates a bright future ahead.
The company also deserves credit for turning Amazon Web Services from a competitor to a “frenemy.” Amazon Web Services, or AWS, has been a major player in data analytics since its inception in 2006. Many companies provide services to AWS, such as Snowflake. Interestingly, SNOW generates most of its income from data analytics jobs on Amazon Web Services, its biggest rival with AWS Redshift.
All in all, SNOW shares are a good purchase because of their reasonable valuation, strong growth prospects and healthy demand for its products.
On the publication date, Faizan Farooque 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.
