Snowflake Inc. (SNOW) provides a cloud-based data platform in the United States and internationally. The company’s platform offers Data Cloud. Its medium is used by various organizations of sizes in a range of industries.

SNOW shares soared following the company’s second-quarter results release, which beat the top line. SNOW’s revenue came in at $497.25 million, up 82.7% year-over-year, topping the analysts’ expectation of $467 million.

“This is a category-leading company that’s growing far faster than almost anything else in software and doing so nicely profitably with improving cash margins,” analysts from Canaccord Genuity said.

However, the company’s bottom line is in the red. Its net loss came in at $222.81 million, up 17.4% year-over-year, while its net loss per share came in at $0.70, up 9.4% year-over-year.

Although the stock has gained 24.4% over the past month, it is down 45% year-to-date, closing the last trading session at $186.43. It has lost 37.4% over the past year.

Here is what could shape SNOW’s performance in the near term:

Recent Developments

On June 14, 2022, SNOW launched its Snowpark for Python. It aims to make Python’s rich ecosystem of open-source packages and libraries accessible to all data scientists, data engineers, and application developers.

Also, the company launched its Native Application Framework, which promises to empower developers to build, monetize, and deploy applications in the Data Cloud. Moreover, SNOW consumers can securely operate those applications directly in their SNOW accounts, reducing the need for data removal and, thus, enhancing customer experience.

Stretched Valuations

In terms of its forward EV/S, SNOW’s 28.51x is 934.2% higher than the industry average of 2.76x. Its forward P/S of 30.86x is 1,016.8% higher than the industry average of 2.76x. Furthermore, its forward EV/EBITDA of 619.18x and forward EV/EBIT of 1,412.79x are significantly higher than the industry averages of 12.78x and 15.99x, respectively.

Poor Profit Margins

SNOW’s trailing-12-month negative EBIT and EBITDA margins of 42.96% and 40.67% are lower than the industry averages of 7.42% and 13.05%, respectively. Furthermore, its trailing-12-month net income margin of negative 41.25% is lower than the industry average of 4.25%.

Moreover, SNOW’s trailing-12-month ROCE, ROTC, and ROTA of negative 13.00%, 8.12%, and 9.56%, compared with the industry averages of 7.28%, 3.98%, and 2.74%, respectively.

POWR Ratings Reflect Bleak Prospects

SNOW has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SNOW has a D grade for Value and Quality, consistent with its higher-than-industry valuation multiples and lower-than-industry profit margins, respectively.

In addition, it has a D grade for Stability, in sync with its 24-month beta of 1.63.

In the 82-stock Technology – Services industry, SNOW is ranked #73. The industry is rated D.

Click here for the additional POWR Ratings for SNOW (Growth, Momentum, and Sentiment).

View all the top stocks in the Technology – Services industry here.

Bottom Line

SNOW’s latest quarterly results have presented solid top-line growth. However, its bleak bottom line is concerning. Moreover, analysts expect its EPS to decline 58.3% year-over-year to $0.05 for the quarter that ended January 2023. Therefore, I think overvalued stock, SNOW, might be best avoided now.

How Does Snowflake Inc. (SNOW) Stack Up Against its Peers?

While SNOW has an overall POWR Rating of D, one might consider looking at its industry peers, Celestica Inc. (CLS), Issuer Direct Corporation (ISDR), and NetScout Systems, Inc. (NTCT), which have an overall A (Strong Buy) rating, and Box, Inc. (BOX), which has an overall B (Buy) rating.

SNOW shares rose $2.97 (+1.59%) in premarket trading Tuesday. Year-to-date, SNOW has declined -44.97%, versus a -14.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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