What happened
Shares of Snowflake (SNOW -0.26%) jumped 7.6% on Monday, following bullish analyst remarks.
So what
Wolfe Research analyst Alex Zukin placed an outperform rating on Snowflake's stock. He sees the data warehousing leader's share price climbing roughly 34% to $250, fueled by the shift from legacy data systems to cloud-based services.
"The business world is experiencing a data tsunami, with data available from a variety of sources," Zukin said. Snowflake helps companies make better use of that data with lower upfront costs and the ability to scale their operations quickly. And with its cloud-native design, Snowflake's tools integrate well with other cloud services.
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Moreover, Zukin noted that venture-backed start-ups are beginning to build services on Snowflake's platform. That should help to increase the value of its ecosystem to customers and fuel its expansion.
Better still, Zukin expects Snowflake's free cash flow to soar in the coming years. Thus, he argues that its stock's premium valuation is warranted, particularly now that its shares have pulled back sharply from their highs back in November.
Now what
Snowflake's stock has shed more than half its value since its price soared above $400 per share late last year. Yet it's arguably still not cheap. Snowflake's shares currently trade for roughly 29 times analysts' estimates for sales in fiscal 2023.
Still, the cloud data star is growing rapidly. Snowflake's revenue more than doubled to $1.2 billion in fiscal 2022, which ended on Jan. 31. And with the migration of data to the cloud still in its early innings, Snowflake is likely to increase its revenue and cash flow at an impressive clip for many years to come.
