This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has nosedived over recent months.

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Warren Buffett at a Berkshire Hathaway AGM

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Warren Buffett is one of the most respected investors of our generation. Despite his advanced age, he’s still actively investing in growth stocks that will be the future even after he’s gone. I always keep a close eye on the performance of his portfolio and I’ve noticed one stock that’s at 52-week lows.

In for the long haul

The stock is Snowflake (NYSE:SNOW). Buffett originally bought the shares during its initial public offering (IPO) in late 2020. It was unusual for him to buy shares during an IPO, which shows me he was keen to get involved.

His investment of 6.1m shares at the time was valued at $735m. Since then, he hasn’t sold any of the stock. From the IPO price of $120, he was up 100% earlier this year. Yet Snowflake shares have taken a nosedive in recent months, with them now down at $127. Therefore, Buffett’s still up on his investment, but not by much.

Why the stock has struggled

The stock’s down by 33% over the past year. Part of this is due to the high expectations investors had coming into the year. Therefore, even though the recent financial results haven’t been terrible, they’ve been worse than expected. As a result, the share price has moved lower.

For example, revenue for the latest quarter was $828.7m, representing 33% year-on-year growth. However, investors were expecting this to be higher. So despite it being up on last year, the stock actually fell after the results came out.

Another factor is the high valuation. I think this was partly ignored during the pandemic, but now I think it’s a lot more on people’s minds. The company’s loss-making and has been for some time. So to have a market-cap of $42bn (which was even higher before the share price slide) is somewhat questionable.

Finding value for the future

Buffett, like me, is a long-term investor. So I don’t think he’ll be too concerned right now, even with the stock at 52-week lows. Fundamentally, Snowflake’s a business that should get to a scale where it will make a profit. It makes money from the cloud-based data warehousing, so there’s plenty of demand. I only see this increasing.

I also think that investor expectations are now lower and so the risk of another sharp share price fall at the next results is lower.

The risk is that the business doesn’t grow revenue to the level where it can break even. Or it could take longer than expected, causing more investors to pull the plug and sell their shares.

Ultimately, I think this is a nice place to start buying Snowflake shares. I’m thinking about buying some now, and then purchasing more in coming months, to build a position over time.

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 assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Snowflake. 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.

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