SNOW Stock: Hyper Growth Drawing Investors
This May, the market saw some rather impressive downside volatility. Accordingly, growth stocks saw a selloff that brought the valuations of many top growth stocks down dramatically. Unfortunately, this price Read More... The post SNOW Stock: Hyper Growth Drawing Investors appeared first on TipRanks Financial Blog.
This May, the market saw some rather impressive downside volatility. Accordingly, growth stocks saw a selloff that brought the valuations of many top growth stocks down dramatically. Unfortunately, this price action did not spare Snowflake (SNOW) from the madness.
However, since this short-term selloff, shares of SNOW stock have rebounded nicely. In fact, shares of this cloud computing player have rebounded approximately 70% from their bottom, just four months ago. Accordingly, long-term investors bullish on the prospects of this company continue to be rewarded by a buy and hold strategy.
The question many investors have is whether or not this momentum can continue. After all, growth stocks are almost all entirely valued at extremely high levels right now. Any one single catalyst could be the straw that breaks the camel's back. Or, at least, that's what bears are saying.
I remain bullish on SNOW stock for various reasons. Let's dive into a few reasons why investors may want to continue to be bullish on this stock as well. (See Snowflake stock charts on TipRanks)
SNOW Stock: Growth Play with Excellent Momentum
Since its gloomy mid-May performance, SNOW has recovered by 70% over these last four months. This dramatic incline higher has been boosted by a number of catalysts. While many investors note that this buying activity appears to be the result of a reversion of sentiment toward a more bullish long-term mean, it's important to keep in mind that these cloud computing stocks can see volatility from time to time.
For now, the momentum with SNOW stock appears to be broadly bullish. For investors who have held this stock for some time, that's a great thing. However, for those who may have missed the dip, these gains can be excruciating to watch, as another entry point may be hard to find, moving forward.
The company's recent strong earnings have propelled this stock higher. The cloud computing player has seen a rebound in top line growth, with expectations that bottom line profitability will come soon. This has resulted in Snowflake regaining its $300 per share level - a level which may not be broken again to the downside for some time, if this momentum continues.
That said, momentum works in both directions. Investors bullish on SNOW stock should remember what happened during previous negative momentum rallies to the downside. This is a highly-valued stock with more room to fall than other value plays in a bear market. Accordingly, investors always need to remember to hold such stocks in a well-diversified portfolio.
That said, in terms of Snowflake's long-term prospects, there's reason to be bullish. This is a stock with the potential to really outperform in a market with positive momentum. Many analysts point out that Snowflake is more flexible, cost-effective and scalable than its rivals. Accordingly, it's clear investors are on the same page with this analysis.
Strong Second Quarter Earnings
As mentioned, Snowflake's recent earnings really were quite strong. The company's second quarter earnings showed triple-digit revenue growth to $255 million. However, the company's third quarter earnings reported even higher triple-digit growth (104% vs. 103% in the previous quarter), to $272 million.
In other words, this company isn't only blowing out earnings expectations, it's accelerating its earnings over time. That's extremely impressive.
Analysts predicted strong revenue growth, but nothing on this scale. From a top line perspective, SNOW stock earnings deserve gold stars.
However, this growth has come at a price. Snowflake is not yet profitable, and has missed on its bottom line in the past. This past quarter, the company lost $0.64 per share, versus analyst estimates of $0.15 per share. While that's not good, it's expected that higher revenue growth along with market share growth will bode well for this company over the long-term.
Investors aren't buying this stock because it's profitable today. Rather, they're banking on Snowflake being able to capture way more of the market over time.
Analysts’ Take on SNOW Stock
TipRanks’ analyst rating suggests that Snowflake is a Moderate Buy. Out of 19 ratings, there are 9 Buy recommendations and 10 Hold recommendations.
The average Snowflake price target is $317.80. Analyst price targets range from a low of $275 per share to a high of $375 per share.
Looking at the numbers, SNOW stock is one that is certainly enticing. While this company remains a hyper-growth stock, and has been blowing away its top-line expectations, perhaps investors will demand a path to profitability soon. In that sort of scenario, some downside could materialize.
However, as long as momentum remains bullish in the market and investors value growth over earnings, this is a stock that is likely to continue to do well. These sorts of growth rates are hard to find in the market today. Accordingly, Snowflake is a stock that remains one of the top growth options for investors right now, and for good reason.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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