Snowflake (SNOW 0.98%) stock went public on Sept. 16, 2020. At the time, expectations for the company were incredibly high. Since then the stock has been on a volatile journey, pushed around in some cases by macroeconomic pressures that had nothing to do with the company's performance.
It's been three-plus years since the IPO and things have settled somewhat in the broader economy. Now seems like a good time to ask the question: Has Snowflake proven to be a good long-term investment? The answer might surprise you.
NYSE: SNOW
Key Data Points
What would a $700 investment in Snowflake be worth today?
If you had invested $700 in Snowflake stock the day shares went public, your stake would now be worth just $454 (a 35% drop). The S&P 500 index, for comparison, increased in value by 57% over that time.
How is this comparatively poor performance possible for a company that has grown revenue by 600% since its IPO? Much of the reason comes down to valuation.
When Snowflake shares debuted, they traded at an incredible 150 times sales. That high of a valuation is rarely seen, even in today's red-hot market. Today, however, shares trade at just 19 times sales. So while sales are up 600% since 2020, the valuation multiple has fallen by nearly 90%. In combination, these competing factors contributed to shares losing roughly one-third of their value.
Make no mistake -- Snowflake is an incredible business. The company's products are differentiated and in high demand. There's even an opportunity for the company to benefit from the rise of artificial intelligence. But as Warren Buffett often reminds us, a stock's performance will ultimately be a function of the price you pay. The market overvalued Snowflake stock in the past. And while its underlying financials have improved considerably over the years, it failed to match the lofty expectations the market had priced in at the start.
