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Snowflake Stock Is Down 50%. One Analyst Just Turned Bullish.

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Snowflake stock rose as high as $429 after going public at $120 last year.

Michael Vi/Dreamstime.com

Snowflake

shares are trading sharply higher after Rosenblatt Securities analyst Blair Abernathy made an upbeat call on the fast-growing cloud-based provider of data- warehousing software.

He lifted his rating on the stock to Buy from Neutral, setting a target of $285 for the stock price, implying a potential gain of almost 34% from Mondays’ close. On Tuesday morning, Snowflake was up 5.5%, to $224.26.

Snowflake (ticker: SNOW) shares have had a wild ride in the public market. The company went public last September at $120 a share, opened for trading at $245, and at one point last year briefly traded as high as $429. But the stock has since been in full-scale retreat: Snowflake on Monday closed Monday at $212.65, a 50% decline from the peak.

The company is due to report earnings for its fiscal first quarter, ended April 30, on May 26. Snowflake is projecting product revenue of $195 million to $200 million, up between 92% and 96%. It doesn’t provide forecasts for overall revenues; in the January quarter, product revenue was about 94% of the total.

Given “the healthy IT spending environment so far this year, the accelerating digital transformation trends and the strong Q1 performance from the leading cloud service providers,” including

Amazon.com,

Microsoft

and Alphabet, Snowflake should meet or exceed his 93% forecast for growth in product revenue. he said in a research note. 

“With the pullback in the stock since last quarter’s report and the operational strength we expect this quarter, we are upgrading our rating,” he said.

But as Abernathy noted, even after its plunge, the stock trades at a multiple of 51 times on an enterprise value to sales basis, “at the upper end of comparable high growth enterprise software vendors.” Not everyone is comfortable with that valuation.

Jefferies analyst
Brent Thill
on Tuesday made a broader call on enterprise software stocks, cutting target prices across the board to reflect a recent contraction in multiples on the group. He said valuations for quality software names are still 15% to 20% above trough levels. 

Thill said companies with elevated multiples could be more susceptible to further declines., noting that the most expensive stocks in the group he covers include Snowflake,

Cloudflare

(NET), CrowdStrike (CRWD), Palantir (PLTR), and

Datadog

(DDOG). If Snowflake’s valuation declined to a still-rich 25 times his estimate for 2022 revenues, he said, the stock could fall another 37%.

Thill maintained a Hold rating on Snowflake shares, cutting his target price to $235, from $280. He also reduced his targets on Cloudflare, to $85 from $100; CrowdStrike, to $230 from $275; and Datadog, to $105 from $120. Thill rates all three at Buy.

Write to Eric J. Savitz at [email protected]

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