Snowflake's (SNOW 7.05%) shares were down nearly 8% this morning before rebounding in the early afternoon. As of 2:15 p.m. ET on Tuesday, the stock had reversed course and was up 1.8%.
One analyst at Truist Securities today cut the near-term price target on the stock from $350 to $300. The stock traded as high as $400 in late 2021. It's been a painful slide for investors, with the stock now trading at $145. But the analyst price cut doesn't mean much in the grand scheme of things. The primary reason for the stock's slide can be blamed on valuation coupled with Snowflake's lack of profitability.
Snowflake entered the year trading at an astronomical price-to-sales (P/S) ratio of around 100. Even after the sharp sell-off, the stock still trades at a relatively high P/S multiple of 35.
For the fiscal fourth quarter of 2022 (which ended Jan. 31), Snowflake reported revenue growth of 102% year over year -- a typical performance for the data warehousing leader. The company reported its strongest bookings quarter to date in the fourth quarter, as several new firms in the Fortune 500 joined the the company's data cloud platform.
An analyst with Wolfe Research initiated coverage of the stock in late April with an outperform rating and a $250 price target. The analyst sees Snowflake emerging as one of the top cloud computing companies along with Microsoft, Amazon, and Alphabet.
It certainly seems that way. Snowflake processed about 1.5 billion daily queries across all its customer accounts in fiscal 2022, up from an average of over 777 million in the fiscal 2021. Not only is revenue growing fast, but the company's net revenue retention rate stood strong at 178%, meaning customers are continuing to spend on additional services after signing up.
Snowflake might be here to stay, but its steep valuation might weigh on the stock in the near term.