What happened

Shares of recent IPO Snowflake (NYSE:SNOW) jumped 6% through 2:30 p.m. EDT trading Tuesday on mixed but mostly positive news out of Wall Street.

On the one hand, investment bank Jefferies cut its price target on the cloud-computing company to $235 per share. Investors, warns the banker, seem to be "taking a breather post [tech stocks'] massive run" from 2020 through early 2021. They're paying smaller multiples to sales and earnings today than they once did. That could put a cap on Snowflake's valuation. Jefferies previously assumed it might be able to rise as high as $280 per share this year; now the analyst is beginning to have doubts.  

Little boy peering through a paper snowflake.

Image source: Getty Images.

So what

That's the bad news. The good news is that even a more pessimistic Jefferies still believes Snowflake is at least somewhat undervalued. (The stock only costs $224 and change today.) The better news is that one of Jefferies' peers thinks Snowflake could be worth quite a bit more.

Indeed, according to an upgrade published by Rosenblatt Securities and reported by StreetInsider.com, Snowflake could eclipse Jefferies' old $280 price target and rise as high as $285 over the next 12 months. As Rosenblatt explains in its "buy" recommendation, "Snowflake is set to report Q1/FY22 results ... on Wednesday, May 26th, after market close."  Rosenblatt added that,

given the healthy IT spending environment so far this year, the accelerating Digital Transformation trends, and the strong Q1 performance from the leading Cloud Service Providers, we expect Snowflake to meet and possibly exceed our 93% y-o-y Product Revenue growth estimate.

Now what

Would such an achievement -- if it comes to pass -- be good news or bad news for Snowflake? That depends.

On the one hand, Rosenblatt certainly sounds optimistic; it's raising its recommendation on Snowflake stock to buy. On the other hand, it's worth pointing out that even "93% y-o-y" growth, over the $108.8 million in revenue that Snowflake booked in last year's first quarter, would result in a revenue number no higher than $210.4 million this Q1. Given that Wall Street as a whole is predicting that Snowflake will book $212.9 million in sales (and a loss for the quarter), merely fulfilling Rosenblatt's prediction would appear to result in an earnings and sales miss for Snowflake.

To beat Wall Street's expectations, Snowflake has to also exceed the expectations of the banker that just upgraded it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.