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Is Snowflake Stock's 9.47X PS Still Worth it? Buy, Sell, or Hold?
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Snowflake (SNOW - Free Report) shares are trading at a significant premium compared to the Zacks Computer & Technology sector. Its forward 12-month Price/Sales of 9.47X is higher than the broader sector’s 6.2X and the Zacks Internet Software Industry’s 2.56X.
Snowflake’s near-term prospects remain foggy. The stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
Snowflake stock has dropped 42.8% in the year-to-date period, underperforming the industry’s gain of 14.5% and the broader sector's return of 19.8%.
SNOW shares are trading below the 50-day and the 200-day moving average, indicating a bearish trend.
SNOW Shares Trade Below 50-Day and 200-day SMA
Image Source: Zacks Investment Research
So, the question that investors should ask is - is Snowflake’s premium valuation justified given the near-term weakness? Let’s dig deep to find out.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
SNOW Shares Suffer From Lower 2025 Margin View
SNOW has been suffering from stiff competition from the likes of Databricks, as well as increasing pricing pressure and growing GPU-related costs as it aggressively invests in AI initiatives. This has hurt gross margin prospects, with Snowflake lowering its fiscal 2025 margin guidance.
For fiscal 2025, SNOW expects a non-GAAP product gross margin of 75% (down from previous guidance of 76%) and a non-GAAP operating margin of 3% (down from previous guidance of 6%).
Slowing top-line growth is a concern. Snowflake expects fiscal 2025 product revenues of roughly $3.3 billion, indicating 24% year-over-year growth, much slower than the 38% year-over-year growth it reported in fiscal 2024.
SNOW's YTD Performance
Image Source: Zacks Investment Research
Snowflake’s Earnings Estimate Trending Down
The Zacks Consensus Estimate for fiscal 2025 is currently pegged at 57 cents per share, down by 1.72% over the past 30 days and indicating a 41.84% year-over-year decline.
The Zacks Consensus Estimate for fiscal 2026 is currently pegged at 88 cents per share, down by 9.3% over the past 30 days and indicating a 53.61% year-over-year decline.
The consensus mark for fiscal 2025 revenues is currently pegged at $3.53 billion, suggesting 25.74% growth over fiscal 2024. For fiscal 2026, the Zacks Consensus Estimate is pegged at $4.32 billion, indicating 22.3% over fiscal 2025.
SNOW’s Expanding Portfolio Aids Long-term Prospects
Although Snowflake is a risky bet in the near term, long-term prospects are robust, driven by a strong portfolio and an expanding partner base.
SNOW has introduced capabilities, including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics and Snowpipe Streaming.
Iceberg tables, Hybrid tables and Cortex Large Language Model (LLM) and machine learning-powered functions became available in public preview. These capabilities are expected to become generally available in fiscal 2025.
Snowflake’s Polaris Catalog — a vendor-neutral, open catalog implementation for Apache Iceberg — the open standard of choice for implementing data lakehouses, data lakes and other modern architectures is supported by Iceberg’s open-source REST protocol.
Polaris Catalog offers Apache Iceberg interoperability with Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”), Confluent, Dremio, Google Cloud, Microsoft (MSFT - Free Report) Azure, Salesforce and more.
SNOW’s Strong Partner Base: A Key Catalyst
SNOW is benefiting from an expanding partner base that includes Amazon, Microsoft, NVIDIA (NVDA - Free Report) , Fiserv, EY, Deloitte, LTIMindtree, Next Pathway and S&P Global, among others.
Its collaboration with NVIDIA will help customers and partners build customized AI data applications in its platform powered by NVIDIA AI.
Snowflake has adopted NVIDIA AI Enterprise software to integrate NeMo Retriever microservices into Snowflake Cortex AI, its fully managed LLM and vector search service. The integration will help enterprises to smoothly connect custom models to diverse business data and deliver highly accurate responses.
Expanded Snowflake and Microsoft partnership plans to offer an interoperability experience between Snowflake and Microsoft Fabric OneLake. The interoperability is possible due to their support for the industry’s leading open standards for analytical storage formats, Apache Iceberg and Apache Parquet.
Snowflake also announced Snowflake Data Clean Rooms to customers in AWS East, AWS West and Azure West. SNOW leveraged its acquisition of data clean room technology provider Samooha to launch the solution.
Snowflake Shares – Buy, Sell or Hold?
Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation. However, investors who already own the stock may expect the company's growth prospects to be rewarding, given its strong portfolio and partner base over the long term.
Image: Bigstock
Is Snowflake Stock's 9.47X PS Still Worth it? Buy, Sell, or Hold?
Snowflake (SNOW - Free Report) shares are trading at a significant premium compared to the Zacks Computer & Technology sector. Its forward 12-month Price/Sales of 9.47X is higher than the broader sector’s 6.2X and the Zacks Internet Software Industry’s 2.56X.
Snowflake’s near-term prospects remain foggy. The stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
Snowflake stock has dropped 42.8% in the year-to-date period, underperforming the industry’s gain of 14.5% and the broader sector's return of 19.8%.
SNOW shares are trading below the 50-day and the 200-day moving average, indicating a bearish trend.
SNOW Shares Trade Below 50-Day and 200-day SMA
Image Source: Zacks Investment Research
So, the question that investors should ask is - is Snowflake’s premium valuation justified given the near-term weakness? Let’s dig deep to find out.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
SNOW Shares Suffer From Lower 2025 Margin View
SNOW has been suffering from stiff competition from the likes of Databricks, as well as increasing pricing pressure and growing GPU-related costs as it aggressively invests in AI initiatives. This has hurt gross margin prospects, with Snowflake lowering its fiscal 2025 margin guidance.
For fiscal 2025, SNOW expects a non-GAAP product gross margin of 75% (down from previous guidance of 76%) and a non-GAAP operating margin of 3% (down from previous guidance of 6%).
Snowflake Inc. Price and Consensus
Snowflake Inc. price-consensus-chart | Snowflake Inc. Quote
Slowing top-line growth is a concern. Snowflake expects fiscal 2025 product revenues of roughly $3.3 billion, indicating 24% year-over-year growth, much slower than the 38% year-over-year growth it reported in fiscal 2024.
SNOW's YTD Performance
Image Source: Zacks Investment Research
Snowflake’s Earnings Estimate Trending Down
The Zacks Consensus Estimate for fiscal 2025 is currently pegged at 57 cents per share, down by 1.72% over the past 30 days and indicating a 41.84% year-over-year decline.
The Zacks Consensus Estimate for fiscal 2026 is currently pegged at 88 cents per share, down by 9.3% over the past 30 days and indicating a 53.61% year-over-year decline.
The consensus mark for fiscal 2025 revenues is currently pegged at $3.53 billion, suggesting 25.74% growth over fiscal 2024. For fiscal 2026, the Zacks Consensus Estimate is pegged at $4.32 billion, indicating 22.3% over fiscal 2025.
SNOW’s Expanding Portfolio Aids Long-term Prospects
Although Snowflake is a risky bet in the near term, long-term prospects are robust, driven by a strong portfolio and an expanding partner base.
SNOW has introduced capabilities, including Marketplace Listing Auto-Fulfillment & Monetization, account replication & failover, Query Acceleration Service, geospatial analytics and Snowpipe Streaming.
Iceberg tables, Hybrid tables and Cortex Large Language Model (LLM) and machine learning-powered functions became available in public preview. These capabilities are expected to become generally available in fiscal 2025.
Snowflake’s Polaris Catalog — a vendor-neutral, open catalog implementation for Apache Iceberg — the open standard of choice for implementing data lakehouses, data lakes and other modern architectures is supported by Iceberg’s open-source REST protocol.
Polaris Catalog offers Apache Iceberg interoperability with Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”), Confluent, Dremio, Google Cloud, Microsoft (MSFT - Free Report) Azure, Salesforce and more.
SNOW’s Strong Partner Base: A Key Catalyst
SNOW is benefiting from an expanding partner base that includes Amazon, Microsoft, NVIDIA (NVDA - Free Report) , Fiserv, EY, Deloitte, LTIMindtree, Next Pathway and S&P Global, among others.
Its collaboration with NVIDIA will help customers and partners build customized AI data applications in its platform powered by NVIDIA AI.
Snowflake has adopted NVIDIA AI Enterprise software to integrate NeMo Retriever microservices into Snowflake Cortex AI, its fully managed LLM and vector search service. The integration will help enterprises to smoothly connect custom models to diverse business data and deliver highly accurate responses.
Expanded Snowflake and Microsoft partnership plans to offer an interoperability experience between Snowflake and Microsoft Fabric OneLake. The interoperability is possible due to their support for the industry’s leading open standards for analytical storage formats, Apache Iceberg and Apache Parquet.
Snowflake also announced Snowflake Data Clean Rooms to customers in AWS East, AWS West and Azure West. SNOW leveraged its acquisition of data clean room technology provider Samooha to launch the solution.
Snowflake Shares – Buy, Sell or Hold?
Snowflake is a risky bet in the near term, given its modest growth prospect and a stretched valuation. However, investors who already own the stock may expect the company's growth prospects to be rewarding, given its strong portfolio and partner base over the long term.
SNOW currently has 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.