Snowflake (NYSE: SNOW) has made a big splash in the data world.
The company’s cloud-based platform helps companies store, manage, and analyze their data. Think of it as a digital warehouse for all your business information. Snowflake’s magic lies in its ability to handle massive amounts of data quickly and easily, letting companies find insights they might have missed before.
That being said, the stock has surely seen better days. In the last seven months, shares have fallen from a 52-week high of about $235 down to around $112, a drop of over 50%.
This decline raises an important question: Does the recent dip present a good buying opportunity for value-conscious investors?
Let’s run the stock through The Value Meter to find out.
First, we’ll look at Snowflake’s enterprise value-to-net asset value (EV/NAV) ratio, which tells us how much investors are willing to pay for the company’s assets.
Snowflake’s EV/NAV sits at 7.86, which is below the average of 10.95 for similar companies. This suggests that, on paper, Snowflake might be a bit undervalued.
However, we also need to consider cash flow. Over the past year, Snowflake’s quarterly free cash flow averaged 4.09% of its net assets. That’s quite a bit lower than the 7.88% average for companies with similarly steady cash flow. This tells us that while Snowflake is making money, it’s not as efficient as some of its peers.
Despite these mixed signals, Snowflake’s recent financial results show strong growth. In the second quarter, product revenue hit $829.3 million, up 30% year over year. The company now boasts 510 customers with trailing 12-month product revenue greater than $1 million, a 28% increase from the previous year.
Importantly, Snowflake’s net revenue retention rate stands at a solid 127%, indicating that existing customers are spending more over time.
Snowflake is also making strides in artificial intelligence. The company reported that over 2,500 accounts were using Snowflake AI on a weekly basis by the end of the second quarter. This push into AI could open up new revenue streams and strengthen Snowflake’s competitive position.
This potential does come with risks, however. The tech world moves quickly, and Snowflake faces tough competition. The company is also spending heavily to fuel its growth, which explains the lower cash flow numbers. Non-GAAP operating margin for the second quarter was just 5%, down from 8% in the same quarter last year.
When we add it all up, Snowflake’s current price seems fair. The stock isn’t a screaming bargain, but it’s not overpriced either. Its valuation reflects both the company’s strong position and the challenges it faces.
With a solid growth trajectory and promising AI initiatives, Snowflake could be an interesting play for long-term investors who believe in the growing importance of data management and analytics.
The Value Meter rates this one “Appropriately Valued.”
What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.
