Shares of data cloud specialist Snowflake (SNOW 3.85%) have been on a roller coaster recently. After falling more than 51% last year amid a broader sell-off of growth tech stocks, shares have risen more than 15% this year. But even in the first half of 2023, it has remained a bumpy ride for shareholders of the fast-growing company's stock. Investors are trying to weigh the company's rapid growth with the fact that those high growth rates are quickly decelerating.

Here's a closer look at Snowflake's business, its growth, and why investors may want to tread carefully when it comes to the company's highly valued stock. In short, there are two big concerns that Snowflake investors should take seriously: the degree to which Snowflake's growth rate is decelerating and management's recent move to significantly lower its full-year revenue guidance.

The red flags

Snowflake grew product revenue by 50% year over year in its most recent quarter. This is nothing to sneeze at. Clearly, Snowflake's data cloud infrastructure is resonating with customers. But the growth doesn't look as impressive when viewed next to recently reported growth rates. In the second, third, and fourth quarter of fiscal 2023 (the three quarters leading up to Snowflake's most recently reported quarter), Snowflake's product revenue growth rates were 84%, 83%, and 67%, respectively. The company's 50% growth rate in its first quarter of fiscal 2024, therefore, marked a big step down. If this rapid deceleration in Snowflake's growth continues, it could become extremely difficult to justify the company's valuation.

The second big red flag for investors is management's move to cut its full-year guidance significantly -- and to do so early in the company's fiscal year. Going into fiscal 2024, Snowflake said it expected product revenue to increase 40% year over year to more than $2.7 billion. But following Snowflake's fiscal first-quarter results, management is now guiding for full-year revenue to grow 34% year over year to $2.6 billion. Hitting this growth rate would require a significant deceleration in the remaining quarters of the year compared to the 50% growth the company put up in fiscal Q1. Indeed, management said it expects fiscal second-quarter revenue to grow much slower, at a rate between 33% and 34%.

Snowflake chief financial officer Mike Scarpelli said that "customers remain hesitant to sign large multi-year deals" in the current macro environment.

A questionable valuation

These concerns wouldn't be bad issues if it weren't for the stock's pricey valuation. But a sky-high valuation means that Snowflake's execution needs to be impeccable. Rapidly decelerating growth and a big cut to full-year guidance are big red flags in the context of Snowflake's massive $55 billion market capitalization.

Not only is Snowflake expensive on a price-to-sales basis, trading at about 24 times sales, but the company isn't even profitable yet. In fact, it's far from being profitable. Snowflake's trailing-12-month net loss has steadily worsened since the company's initial public offering. Today, it sits at $856 million, or 38% of sales.

Given the company's slowing growth and management's lowered view for full-year revenue, shareholders buying the stock at today's price are doing a lot of speculating. While it's possible that the data cloud platform provider will grow more than anticipated over the next 10 years, rewarding shareholders, investors who buy Snowflake stock today are arguably going out on a limb.