Snowflake (SNOW 0.98%) is an intriguing but scary stock for many investors. Its lead in the data cloud and potential within that industry could drive massive returns over time. This value proposition earned an investment from Warren Buffett's team at Berkshire Hathaway before its IPO.

Even after a brutal bear market sell-off in 2022, the stock still sells for about 26 times sales, a level likely to put off investors except when in the midst of a bull market. But despite that concern, investors still have three compelling reasons to buy this SaaS stock.

1. Its data cloud solution

Admittedly, the top cloud companies offer competing data cloud products. Snowflake's $60 billion market cap is a small fraction of their $1 trillion or more market caps, making it look like an insurmountable obstacle.

However, the company forecasts a $248 billion total addressable market by 2026. Snowflake has placed itself in a unique position to capitalize by offering a plug-and-play system. This easy implementation makes it attractive.

Additionally, unlike Amazon's or Microsoft's systems, it does not have a bias toward one cloud infrastructure environment. This ability to function across cloud ecosystems makes it more valuable.

2. Revenue growth

The most obvious confirmation of Snowflake's growing popularity is arguably its revenue growth. In the first three months of fiscal 2024 (ended April 30), revenue reached $624 million, a 48% increase compared with the same quarter in fiscal 2023. Its 151% net revenue retention (meaning long-term customers spent 51% more on the platform on average compared with one year ago) and the 29% growth in the size of its customer base drove revenue higher.

Still, thanks mainly to stock-based compensation expenses, operating expenses continue to exceed revenue. Consequently, Snowflake's fiscal Q1 loss came in at $226 million, up from $166 million in the year-ago quarter.

Nonetheless, it forecasts $2.6 billion in product revenue (the majority of overall revenue) for fiscal 2024, a 34% increase. If it can maintain a rapid revenue growth rate and keep stock-based compensation costs in check, the losses should begin to fall.

3. Snowflake is not as expensive as it looks

Indeed, even with the rapid revenue growth, the 26 price-to-sales (P/S) ratio stands out. Even if the market is recovering, that sales multiple could seem a little high for a money-losing company.

However, investors should remember that the sales multiple is near all-time lows. Also, Snowflake's stock may not be as pricey as it appears. This may become obvious over time since the 23% stock price growth is far below the 48% revenue growth recently reported. This effectively reduces the P/S ratio, and if analyst estimates hold, that will mean the P/S ratio falls to 16 on a one-year forward basis.

Admittedly, investors do not want to see the stock stagnate or fall. But unless it grows rapidly in the near term, the sales multiple will probably keep falling, thus making it a cheaper stock.

Making sense of Snowflake stock

Despite a high P/S ratio, Snowflake is a buy. The company sells the most versatile product in the fast-growing data cloud market. The rapid pace of revenue growth confirms its popularity and has effectively lowered the sales multiple, making the stock less expensive.

Indeed, Snowflake will be too expensive for some investors despite these attributes, and one cannot guarantee it will rise immediately. But as Snowflake earns greater revenue in this growing industry, it is likely to further profit Buffett's investment team -- and those who follow their lead.