SNOW - Snowflake: Melting Faster Than An Ice Cube
2024-03-18 08:00:00 ET
Summary
- Despite beating top and bottom line estimates in Q4, Snowflake's stock has tumbled by 30%+ over the last couple of weeks.
- Investors are seemingly concerned about further growth deceleration and the retirement of Frank Slootman.
- Given SNOW stock was running well above our fair value estimate going into the report, I am not surprised to see such a negative reaction from Mr. Market.
- However, is this dip a buying opportunity? Read on to find out!
Introduction
In my previous note on Snowflake Inc. ( SNOW ), I called out Snowflake's rally for having gone too far, too fast:
Snowflake: Melting Faster Than An Ice CubeGiven an uncertain macroeconomic backdrop, buying Snowflake at ~100x P/FCF is too hard for me despite having a bullish view of its long-term business prospects. If you have been following my work on SNOW, you know that I have been accumulating Snowflake shares in the low to mid-$100s since 2022. While I am ecstatic about the post-ER pop in SNOW, I think the stock has run up too far, too fast.
My updated fair value estimate for Snowflake is $137 per share, which implies a -27% downside from current levels. With SNOW's 5-year expected CAGR return falling short of our investment hurdle rate of 15%, it is not a "Buy" according to TQI's Valuation Model.
Paying a premium for a high-quality, rapidly growing business like Snowflake is not the worst idea out there, as SNOW could grow into this valuation within 12-24 months. However, I think broad market indices are overdue for a correction/pullback and Snowflake's Q3 report did nothing to justify chasing the stock at currently elevated levels.
Key Takeaway: I continue to rate Snowflake a "Hold/Neutral" at $188.50 per share, with the idea of resuming slow, staggered accumulation if the stock pulls back to the mid-$100s.