While the tech heavy NASDAQ index continues to drop, shares of data warehousing company Snowflake (NYSE:SNOW) are going from strength to strength. In a way, it’s business as normal for them. Having IPO’d last September, they rode the wave of risk-on euphoria that was rampant across equities towards the end of last year and soon found themselves up more than 70% in less than three months.
But so too did they suffer in the first quarter of 2021 as increasing inflation fears sent interest rates flying higher. From those highs of December, they got a rude awakening and fell 50% into the end of March before going on to hit all time lows earlier this month. But with Q1’s earnings report due towards the end of May, Snowflake shares are at the start of what looks like a potential fresh rally.
Wall Street hasn’t been slow about pointing out the solid longer-term opportunity on hand right now and for those of us looking to build exposure to the tech sector in portfolios even as the broader market continues to trade softly, Snowflake offers an interesting opportunity.
Multiple Upgrades
Late last week Goldman Sachs (NYSE:GS) upgraded shares from Neutral to a Buy, on the back of Snowflake being "well positioned to capitalize on a generational shift". They upped their price target to $275 which even from Tuesday’s closing price still suggests upside of more than 20%. In a note to clients, they said they see Snowflake as being well positioned for the "shift of data and analytics to the cloud with strong secular tailwinds including cloud adoption, big data, AI/ML, and secure data sharing."
The 18% that shares have run-up in the past week has also been fuelled by similar bullish comments from Rosenblatt who only yesterday also upgraded Snowflake shares to a Buy while giving them a fresh price target of $285. Analyst Blair Abernethy has high hopes for the company’s upcoming earnings report and expects Snowflake to either “meet or beat the firm's 93% year-over-year product growth revenue estimate, confidence driven by the healthy IT spending environment and strong performance among Snowflake’s cloud services peers.” Abernethy wasn’t afraid to also observe that Snowflake’s valuation, even with the recent dip, is at the upper end of its enterprise software peer group, but feels it’s somewhat justified by the fact they’re growing at a much faster than average pace.
Indeed, this higher than usual valuation didn’t stop Stephen Mandel’s Lone Pine Capital from adding to their Snowflake position in their latest 13F filing, released this week. Mandel and his team are obviously viewing the fall from last December’s highs as a massive buying opportunity and those of us on Main Street could do worse than following them into the trade as Lone Pine Capital aren’t the only heavyweights taking advantage of the discounted share price. This week has also had a 13F filing from Melvin Capital, which showed the fund initiating a new position in Snowflake shares over the past few weeks.
Getting Involved
Even though Snowflake is burning through a significant amount of cash, and is in fact losing money per customer right now, their pace of their growth and future prospects seem to more than makeup for that. Like with Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) in the past, Wall Street is of the opinion that you have to break eggs to make an omelette, or in other words, spend a ton of cash to get profitable. March’s earnings report had revenue up 117% year on year and investors will be hoping May’s report reaffirms the pace at which Snowflake is growing and by doing so confirms the long term potential.
Shares are moving strongly up off their lows from last week and are back trading in the channel where they consolidated after Q1’s drop. With a bullish MACD crossover just after being logged and the stock’s RSI moving quickly off the 30 level, the buy-the-dip opportunity on this one is real and mightn’t be around for much longer.
