Is Snowflake Stock a Good Buy?
Source: iStock

Summit Initiates Coverage of Snowflake Stock With a ‘Sell’ Rating


Sep. 22 2020, Updated 12:23 p.m. ET

Snowflake, a cloud-based data warehouse provider that operates in the enterprise software space, counts Warren Buffett's Berkshire Hathaway and Salesforce as notable investors. Its stock is hot in demand—it more than doubled at its IPO on Sept. 16, despite being priced above its expected range. But is Snowflake stock a good buy? 

Article continues below advertisement
Article continues below advertisement

First analyst rating for Snowflake stock

Summit Insights became the first Wall Street firm to initiate coverage of Snowflake stock. The firm gave the stock a "sell" rating and a $175 price target, which implies a 25 percent downside from its current price. 

According to Summit analyst Srini Nandury, Snowflake stock is at risk of a "violent selloff." The analyst also wrote that Snowflake is "the most expensive name in all tech."

Article continues below advertisement

Why is SNOW stock so expensive?

Snowflake stock is trading an at enterprise value 76 times its sales for the next year. In contrast, Zoom is trading at 41 times its sales, while Shopify is trading at 31 times its sales.

Investors have piled into Snowflake stock in pursuit of the next big thing in cloud computing, resulting in its pricey valuation. Snowflake’s market, data warehousing, is on track to hit $35 billion in 2025 from $18.6 billion in 2017. With stocks of companies such as Amazon costing thousands of dollars, some investors see Snowflake stock as a lower entry point to the cloud sector.

Article continues below advertisement

What is Snowflake's stock price today?

Snowflake stock rose 1.80 percent to $233 in premarket trading today. Yesterday, the stock fell 3.84 percent to close at $228.85 after the Summit Insights rating weighed on the stock. Snowflake is currently 90 percent above its IPO price of $120. 

Article continues below advertisement

Should you buy Snowflake stock?

Bargain hunters may like that Snowflake stock is currently trading around 30 percent below its all-time high of $319, and the company's growth potential looks attractive. The company estimates its addressable market to be more than $80 billion, and its $265 million in revenue in its most recent fiscal year implies that Snowflake has captured less than 1.0 percent of the market.

Snowflake says it has been taking customers from IBM and Teradata. The Snowflake IPO raised about $3.4 billion, which the company plans to use to expand through capital investments and strategic acquisitions.


More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.