Snowflake’s share price is rising. Should I buy this Warren Buffett stock now?

Warren Buffett-backed cloud computing company Snowflake just saw its share price rise 10%. Edward Sheldon looks at whether he should buy the stock now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Buffett at the BRK AGM

Image source: The Motley Fool

When I last covered Warren Buffett-owned cloud computing stock Snowflake (NYSE: SNOW) around a year ago, I said that I was going to leave it on my watchlist instead of buying it. In hindsight, that was a wise move, as over the next six months, Snowflake’s share price fell by around 50%.

Recently however, Snowflake’s share price has been moving up again. Today, it’s up more than 10%. So, what’s behind this big share price jump? And should I pull the trigger and buy this Buffett-owned tech stock for my portfolio?

Why Snowflake’s share price just popped

The reason Snowflake’s share price has jumped today is that the company’s third-quarter fiscal 2022 results, posted last night, were very strong and ahead of Wall Street’s expectations.

For the quarter ended 31 October, revenue came in at $334.4m, up 110% year-on-year and well ahead of the consensus forecast of $305.6m. Meanwhile, remaining performance obligations – which is deferred revenue plus the backlog – were $1.8bn, up 94% year-on-year.

During the period, Snowflake managed to grow its customer base by a healthy amount. At 31 October, the group had 5,416 total customers and 148 customers with trailing 12-month product revenue greater than $1m. By contrast, at the end of Q2, it had 4,990 total customers, and 116 customers with revenue over $1m.

Snowflake saw momentum accelerate in Q3,” commented CEO and Chairman Frank Slootman. “Our vertical industry focus is an important evolution of our selling motion and Snowflake continues to see broad industry adoption,” he added.

What the market really liked here was the Q4 guidance. Looking ahead, Snowflake expects product revenue for Q4 of between $345m and $350m. That would represent growth of 94% to 96%. Going into the results, analysts had been expecting product revenue of around $316m for the fourth quarter. So, this guidance was well above estimates.

The upbeat guide for Q4 product revenue helps illustrate that the trends in the business are durable and why Snowflake remains one of the really unique hyper-growth stories in software,” said analysts at Evercore.

Should I buy this Buffett stock now?

Snowflake is a really interesting company, in my view. One thing that stands out to me is the growth the company is generating. For the 2022 fiscal year (ending 31 January 2022), product revenue is expected to grow by around 103%-104%. This is after the group posted product revenue growth of 116% last fiscal year. This level of growth suggests to me that Snowflake has a very good offering.

Another thing that stands out is the investor base. Warren Buffett isn’t the only big-name investor here. Some names in the top 10 shareholder list include BlackRock, Vanguard, Morgan Stanley, Altimeter Capital, Sequoia, and Tiger Global. These are some of the biggest players in the investment world, which suggests that this company is the real deal.

I still have a few concerns over the valuation, however. At the current share price, Snowflake has a market cap of around $102bn. This means the forward-looking price-to-sales ratio (there’s no price-to-earnings ratio as it’s not yet profitable) is in the 80s. That’s very high. At that valuation, I’d expect the stock to be very volatile at times.

Given the high valuation, I’m going to keep Snowflake on my watchlist for now. At present, the stock is just too expensive for me. That said, if we see another big pullback here, I may take a small position.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

When will the Rolls-Royce share price recover?

The Rolls-Royce share price may be down, but cash flows are surging! Zaven Boyrazian explores how long it could be…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

1 dirt-cheap FTSE 100 stock I think could TRIPLE my money!

Demand for lithium is forecast to surge by 42 times, enabling this FTSE 100 stock to potentially supercharge its profits…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »