Snowflake (SNOW -0.44%) shares sold off sharply following the company's recent earnings report, but Rosenblatt analyst Blair Abernethy sees the dip as a buying opportunity. He recently upgraded the stock from "neutral" to "buy" with a $185 price target. That's 20% above the stock's Apr. 5 closing price.
Why buy Snowflake stock
The company's slowing revenue growth over the last two years has limited the stock's gains, but it still posted year-over-year growth of 33% in its fiscal 2024 fourth quarter (ended Jan. 31).
To its credit, Snowflake has been signing long-term deals with customers, and it's seeing pent-up demand for new products coming out, such as Snowflake's Document AI, which allows the user to quickly locate information across unstructured data. Abernethy likes the demand trends he's seeing for the company's offerings.
Importantly, Snowflake is rolling out new products while generating growing free cash flow, which increased 57% last year to $779 million. That level of growth should help support the stock's valuation, which currently stands at 66 times trailing free cash flow.
The stock may still be pricey, but it's over 60% below its previous peak. This latest sell-off may help lower growth expectations and set the stage for a rebound.
While it's uncertain how long it'll take the stock to reach the analyst's price target, Snowflake has a great opportunity to capture growing demand for artificial intelligence (AI)-enabled services. Companies are eager to invest in this technology, but AI requires quality data, which Snowflake is in the business of providing. If new products like Document AI continue to gain customer interest, the stock could still outperform over the next several years.
