Investors who bet on cloud data company Snowflake (SNOW -1.10%) when it went public last year have been on quite the rollercoaster ride. The stock went public at $120 per share and shot up to around $240 per share on day one. It then soared to a high of $429 per share in early December. At its peak, the company was worth over $100 billion.

Things have not gone well since then. Snowflake stock slumped as 2020 came to a close, and the recent sell-off in high-flying tech stocks led shares of Snowflake to dive again. The stock now trades for around $230 per share, down about 46% from its peak and below where it closed after its first day of trading.

SNOW Chart

SNOW data by YCharts

Why is this happening? It's certainly not due to the performance of the company. Revenue soared 117% in Snowflake's latest quarter, and it guided for product revenue to nearly double in the first quarter of the current fiscal year. The company also reported a net revenue retention rate of 168%, which indicates that its current customers are ramping up spending at a healthy rate.

Snowflake isn't profitable, and the bottom line is only getting worse, but the stock market hasn't really cared about profits any time recently. Growth has been all that matters. Snowflake booked a net loss of nearly $200 million in its latest quarter, and a net loss of over $500 million for the full fiscal year.

A cloud.

Image source: Getty Images.

Those massive losses are probably not the reason for the abysmal performance of Snowflake stock, or at least not the only reason. More likely, this is a case of a stock that has simply soared too high too fast.

A crazy multiple

Snowflake's rapid growth certainly implies that the stock deserves to be valued at a premium to slower-growing companies. But things got a little out of hand last year. Snowflake generated about $590 million of revenue in the fiscal year that ended in January. At its peak market capitalization of about $110 billion, the company was valued at a staggering 186 times annual sales.

Yes, revenue is still growing very quickly, so that multiple will come down fast over time. But to get a sense of exactly how expensive Snowflake was at its peak, here's a chart of price-to-sales ratios for some dot-com bubble darlings in the late 1990s and early 2000s:

ADBE PS Ratio Chart

ADBE PS Ratio data by YCharts

Of course, many companies during the dot-com bubble had little or no revenue and were valued at hundreds of millions of dollars. Such a high price-to-sales ratio would be more understandable if Snowflake was much smaller. But this is a company that was valued at more than $100 billion at its peak. Microsoft's price-to-sales ratio when it was worth $100 billion in the late 1990s was around 10.

Even after declining by nearly 50%, Snowflake stock still trades for over 80 times annual sales. If you knew the company would continue to nearly double revenue each year for the next few years, it could make sense to pay that much. But that kind of growth gets tougher to achieve as the numbers get bigger. Doubling revenue when you're doing a few hundred million dollars annually is a lot easier than when you're doing a few billion dollars annually.

What happens next to Snowflake stock is anyone's guess. If investors get any whiff of a growth slowdown this year, the stock could very well keep tumbling. And even if Snowflake keep growing fast and beats analyst estimates at every turn, a sentiment shift away from profitless growth stocks could create a major headwind for the stock.

How much is Snowflake really worth? Who knows? But it's probably not worth 186 times sales.