The glass-half-empty view will show that shares of Snowflake (NYSE: SNOW) were trading down as much as 70% from last year’s highs only two weeks ago. They’d been in freefall since May’s earnings report and seemed intent on setting new all-time lows for the rest of the summer. But the glass half full view will have you look at the 40% they’ve popped in the past fortnight and the fresh voices that have been added to the bull camp. Let’s take a look at some of the reasons why the glass-half-full view is the right one here for Snowflake.
For starters, their most recent earnings report has to be considered. While it was responsible for an immediate 14% drop thanks to a wider than expected fiscal first-quarter loss, there was actually a lot to like for those of us with a long-term investment horizon. Yes, EPS was a deeper shade of red than expected, but the company’s revenue beat expectations and showed year-on-year growth of 85%. This is a remarkable print, especially in light of the 70% haircut shares have undergone during the same quarter.
Still, the report was enough to sink them down to fresh lows, and with red hot inflation readings hurting tech stocks the most, you’d have been forgiven for striking Snowflake off your watchlist and moving on. However, not only have they recently put in an attractive technical low (more on that later), some of the bigger heavyweights on Wall Street are starting to row in behind them.
Only two days ago, the team over at Jeffries upgraded the data warehousing company, citing the recent "meaningful" multiple compression and the company's continued success with expanding its platform.
Analyst Brent Thill upgraded Snowflake to a Buy rating from Hold and raised the per-share price target to $200 from $125, noting that investors should stick with the stock in the long run, "given its large end markets and plenty of room to double its value while growing into a reasonable multiple."
This $200 price target suggests there’s upside to be had from where shares closed on Wednesday of around 40%. This should be enough in its own right to make even the more skeptical rethink their position. In the upgrade, Thill noted that Snowflake, led by Frank Slootman, has "best in class fundamentals" and its execution has been "near flawless" over the past several quarters, due to its "all-star management team" that has successfully scaled software businesses elsewhere. In his note to clients he added that "we see several parallels between Snowflake and other best-in-class software platform stories such as Salesforce (NYSE: CRM), ServiceNow (NYSE: NOW), and Datadog (NASDAQ: DDOG) and note that the company is growing far faster than peers at similar revenue scale".
This is a staunchly bullish position to take and echoes that of the team over at J.P.Morgan who upgraded Snowflake to an Overweight rating from Neutral after its rating surged in a recent CIO study. Analyst Mark Murphy moved the stock to overweight from neutral and maintained the firm's $165 price target on Snowflake shares, implying a 30% upside from current levels. In a note to clients, he wrote that "Snowflake enjoys excellent standing among customers as evident in our customer interviews and recently laid out a clear long-term vision at its Investor Day in Las Vegas toward cementing its position as a critical emerging platform layer of the enterprise software stack," adding that it is now in "elite" territory in the CIO survey.
Notwithstanding the poor performance of shares this year, these two upgrades from some of the more reputable sell-side firms are notable and carry significant weight. Add to these the fact that the technicals support an entry and you have the perfect trifecta. We have here a tech stock that’s still growing revenues by more than 80% year on year, despite taking a serious beating on the marketing, and that has put in a technical low right around the same time they’ve received two serious upgrades.
Those of us getting involved should watch for this month’s low of $114 to hold while shares consolidate. Assuming there’s no ugly surprises around the corner there’s every reason to think shares will be trending back to $200
before the summer is over.
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