Warren Buffett has a knack for picking great stocks. Under his leadership, Berkshire Hathaway has built an investment portfolio worth over $308 billion, and many stocks in that portfolio have at least doubled in value, including Apple, American Express, and Coca-Cola.

MoffettNathanson analyst Sterling Auty believes another company will soon join that list. Berkshire invested $735 million in Snowflake (SNOW 1.00%) at its IPO price of $120 per share in September 2020. Auty has a 12-month price target of $242 per share on Snowflake, which implies 76% upside from its current price (and roughly 102% upside from Berkshire's cost basis).

Is it time to buy this Buffett stock?

Snowflake helps businesses harness the power in big data

Companies depend on an ever-growing number of digital technologies that create tremendous amounts of data on a daily basis. But that data is often stuck in disparate systems, making it difficult for organizations to derive value from it. Snowflake aims to solve that problem with its Data Cloud.

The Data Cloud integrates multiple workloads that have traditionally required numerous point products, allowing businesses to ingest, store, and analyze the data spread across their IT ecosystems. The platform also helps collaboration by facilitating the secure sharing of data, and it supports data science by facilitating that transformation of data for use cases like machine learning and advanced statistical analysis. Additionally, the Powered by Snowflake program allows organizations to build and operate data-driven applications in the Data Cloud.

Suffice it to say Snowflake offers a feature-packed platform, and no other product on the market provides the same functionality. But customers also benefit from its infrastructure-neutral design. The Data Cloud runs across all three major public clouds -- Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud Platform -- giving customers the freedom to work with the cloud vendor (or vendors) of their choosing.

Snowflake is growing like wildfire

Snowflake tailors its Data Cloud to specific industries. For instance, the company launched the Telecom Data Cloud earlier this year, building on other vertical-specific products for retailers, advertisers, and financial services providers. Those tailored products pair the functionality of the Snowflake platform with industry-specific partner solutions and datasets, accelerating time to value for customers. That go-to-market strategy is highly effective.

Snowflake's customer count climbed 31% to 7,828 in the fourth quarter of fiscal 2023 (ended Jan. 31, 2023), and the company reported a revenue retention rate of 158%, meaning the average customer spent 58% more over the past year. Very few companies ever achieve a revenue retention rate that high, which speaks to the value the Data Cloud creates for customers.

On that note, full-year revenue rose 69% to $2.1 billion, and the company generated free cash flow (FCF) of $496 million, up sixfold from the prior year. That represents a solid FCF margin of 24%. Those results are particularly impressive given the challenging economic environment.

Looking ahead, management expects product revenue to reach $10 billion by fiscal 2029, which implies revenue growth of about 30% annually over the next six years. The company is also targeting a FCF margin of 25%, which implies FCF of $2.5 billion in fiscal 2029.

The investment thesis is clear, but the stock is pricey

The investment thesis is simple: Snowflake helps companies use big data to build applications and make informed decisions, and businesses that use data effectively stand to gain a competitive advantage over their peers. Additionally, its cloud platform improves operational efficiency by consolidating a variety of workloads, while eliminating the need to manage the underlying infrastructure. That puts Snowflake in front of a $248 billion addressable market, according to management.

However, shares currently trade at 21.4 times sales. That is a big discount to the historical average of 75.3 times sales, but it is far from cheap. Snowflake stock is down 65% from its high, but its current valuation leaves plenty of room for further share-price declines, especially in the event of a recession. For that reason, risk-averse investors should steer clear, but risk-tolerant investors should consider buying a small position in this Buffett stock today.

As a final caveat, investors should never lean too heavily on Wall Street's price targets. The odds of a 76% return over the next year are remote at best. Investors that buy the stock should be prepared to hold for at least three to five years.