Snowflake SNOW shares are currently overvalued, as suggested by its Value Score of F.
In terms of the 12-month price/sales (P/S), SNOW is trading at 13.13X, higher than its median of 12.39X and the Zacks Internet – Software industry’s 3.11X.
At such a high valuation, the question that arises is whether the SNOW stock is still a worthy investment. Let us dig deeper to find out.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
In the trailing 12 months, SNOW shares have plunged 16.9%, underperforming the Zacks Computer and Technology sector’s appreciation of 27.4% and the industry’s return of 32.3%.
SNOW has been facing tough competition from rivals like Databricks, coupled with rising pricing pressures and escalating GPU-related costs, as Snowflake is aggressively investing in AI initiatives.
One Year Performance
Image Source: Zacks Investment Research
However, Snowflake’s prospects are robust, driven by a strong portfolio and an expanding partner base.
The stock is currently trading above the 50-day and 200-day moving averages, indicating a bullish trend.
SNOW Stock Trades Above 50-Day & 200-Day SMAs
Image Source: Zacks Investment Research
Strong Partner Network Aids Snowflake’s Prospects
SNOW benefits from a strong partner base that includes major players like Amazon AMZN, ServiceNow NOW, Microsoft MSFT, NVIDIA, Fiserv, EY, Deloitte, LTMindtree, Next Pathway and S&P Global.
SNOW’s partnership with ServiceNow is improving data interoperability, making it easier for customers to move data in and out of Snowflake and develop applications faster.
Snowflake has also partnered with Microsoft to establish a Snowflake Power Platform connector for Microsoft Power Platform, enabling bidirectional access between Dataverse and SNOW’s AI Data Cloud. The connector simplifies data interoperability between Microsoft’s service suite, Dynamics 365 and the Snowflake AI Data Cloud.
Snowflake’s partnership with Anthropic integrates advanced AI models into Cortex AI, supporting secure and flexible AI applications. These efforts are aimed at countering the fierce market competition and addressing pricing pressures in a rapidly evolving data platform market.
Innovations like Iceberg and Hybrid tables, Polaris, Cortex Large Language Model and machine learning functions are being utilized by industry leaders such as Disney, Hyatt Hotels, Comcast, Accor and Toyota. Disney is leveraging SNOW’s platform for in-park optimization, while Hyatt Hotels is using it to enhance guest experiences across its properties.
The planned acquisition of Datavolo strengthens Snowflake’s platform, offering enhanced support for structured and unstructured data while simplifying data engineering tasks.
SNOW Offers Positive Guidance for Q4 & FY25
For the fourth quarter of fiscal 2025, Snowflake expects product revenues of $906-$911 million. The projection range indicates year-over-year growth of 23%.
The Zacks Consensus Estimate for fourth-quarter fiscal 2025 revenues is pegged at $952.67 million, indicating 22.97% year-over-year growth.
The consensus mark for earnings is pegged at 17 cents per share, unchanged over the past 60 days. The estimate suggests a year-over-year decrease of 51.43%.
For fiscal 2025, Snowflake expects product revenues to increase 29% year over year to $3.43 billion. The non-GAAP product gross margin is anticipated to be 76% and the non-GAAP operating margin is likely to be 5%.
The Zacks Consensus Estimate for SNOW’s fiscal 2025 revenues is pegged at $3.59 billion, indicating year-over-year growth of 28%.
The consensus mark for earnings is pegged at 69 cents per share, unchanged over the past 30 days. The estimate suggests a decrease of 29.59% on a year-over-year basis.
SNOW has beaten the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed once, the average surprise being 35.39%.
Snowflake Inc. Price and Consensus
Snowflake Inc. price-consensus-chart | Snowflake Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
What Should Investors Do With SNOW Stock?
Snowflake benefits from a rich partner base, an expanding clientele, strategically planned acquisitions and an innovative portfolio. However, it is weighed down by competitive pressures and rising costs.
Given the company’s modest growth prospects, as suggested by a Growth Score of C, we believe that its valuation is significantly stretched, making the stock a risky bet for investors.
SNOW currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpAmazon.com, Inc. (AMZN) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
ServiceNow, Inc. (NOW) : Free Stock Analysis Report
Snowflake Inc. (SNOW) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
