Growth investors have no shortage of risk factors to mull over these days. In addition to inflation that's running hot and the rising interest-rate environment, recent signs of weakness in the banking sector have added another bearish wrinkle for the market at large. In simple terms, the broader macro backdrop has been a mess recently, and it's not clear when exactly these challenges will dissipate.

On the other hand, it's also probably fair to say that these challenges won't last forever, and fortune has generally favored investors who are willing to make bold bets on bullish trends shaping performance for individual stocks and the market at large. A bull market is somewhere on the horizon, and those who build positions in top growth stocks on the heels of valuation turbulence could score life-changing returns.

With that in mind, let's take a closer look at Snowflake's (SNOW -0.88%) stock. Snowflake is a beaten-down tech stock that's down 65% from its all-time high. However, it has a chance to deliver fantastic returns for those who take a buy-and-hold approach at today's prices.

A hundred-dollar bill and chart lines.

Image source: Getty Images.

Making sense of the data boom

According to a research survey from S&P Global Market Intelligence, 98% of enterprise respondents said they were already using or planned to use at least two cloud-infrastructure service providers. Meanwhile, 31% of respondents said that they were already using four or more cloud-infrastructure providers.

More business operations will continue migrating to the cloud, and data analytics will play an increasingly important role in shaping business strategies, driving execution, and powering applications services. But the expanded capabilities and flexibility offered by multicloud setups also create added complexity, and it's often impossible to combine and analyze data from different infrastructure providers and get a comprehensive analytics picture. Snowflake is at the forefront of solving this problem and helping its customers make sense of the data boom.

Snowflake's Data Cloud is a data-warehousing platform that makes it possible to combine and analyze information that is generated from otherwise walled-off cloud-infrastructure services. In addition to making it possible to combine, store, and analyze data from Amazon, Microsoft, and Alphabet's respective cloud services, Data Cloud also supports marketplace services that make it easy to buy, sell, and share access to data that can improve business efficiency. Using these features as a foundation, the software specialist is also positioning its Powered By Snowflake platform as a go-to destination for developing and running data-intensive applications. 

Snowflake is scoring wins with large customers

As opposed to the software-as-a-service (SaaS) model that has become popular among many tech companies, Snowflake largely relies on a consumption-based model. While attracting and scaling with smaller customers remains an important part of the company's overall growth strategy, larger customers will naturally have greater consumption in most cases, and they're less likely to see dramatic usage deterioration in the event of broader macroeconomic downturn.

The company ended the quarter with 7,828 customers, representing growth of 31% year over year. Of those customers, 330 generated trailing-12-month product revenue of more than $1 million, with the cohort's count up roughly 79% year over year from 184 in the prior-year period. Snowflake also ended the year with 573 customers in the Forbes Global 2000, up 16% on an annual basis. 

Between new customer additions and a 58% year-over-year average spending increase from existing clients, Snowflake grew product revenue 54% in the fourth quarter and ended the year with product revenue up 70% at $1.9 billion. Coming in at 25%, the company also posted a very encouraging non-GAAP (adjusted) free-cash-flow (FCF) margin for the year. But despite strong business performance, the company's share price remains down roughly 65% from its high.  

Snowflake could deliver market-crushing returns

In addition to macroeconomic pressures generally depressing valuations for growth stocks, Snowflake's business is also seeing some growth deceleration in conjunction with unfavorable macrotrends. With the potential for an economic downturn looming, customers are taking more cautious approaches to growth initiatives and renewing and expanding contracts, and the data-services specialist is guiding for annual sales growth in the range of 40% this year. Admittedly, the tech company still has a highly growth-dependent valuation even after recent pullbacks.

SNOW PS Ratio (Forward) Chart

SNOW PS Ratio (Forward) data by YCharts.

With the stock trading at roughly 15.5 times expected forward sales this year, Snowflake's valuation could remain under pressure if bearish conditions continue shaping the broader market backdrop in the near term. On the other hand, the company appears to be building a powerful moat and network effects in service categories that are poised to see surging demand over the next decade and beyond. The pullback on the stock looks like a worthwhile buying opportunity for risk-tolerant investors.

IN addition, Snowflake once again expects to post an adjusted free-cash-flow margin of approximately 25% this year. With guidance for sales of approximately $2.7 billion this year and the company valued at roughly $44.5 billion, the software specialist is trading at about 66 times adjusted-forward FCF. Again, that's a very growth-dependent multiple, but it starts to make the valuation picture look more reasonable given that the company is on track to increase product revenue by 40% this year despite economic challenges and it still has a massive long-term growth opportunity ahead.

With the arrival of the next bull market, investors will warm back up to growth stocks, and Snowflake's forward-looking valuation profile will likely be less out of sync with the market at large. Furthermore, the current batch of macro challenges won't last forever, and the data specialist is positioned to capitalize when economic conditions improve.

For investors looking to build positions in top tech companies ahead of the next bull market, Snowflake stock stands out as a worthwhile buy.