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.
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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.
