Snowflake: Buy The Dip On Lower Valuation And Rising RPO

In the ever-evolving landscape of cloud computing, Snowflake (SNOW) has long been a standout name, celebrated for its innovative data warehousing solutions. However, as of early 2026, the stock trades at a notably lower valuation compared to its historical highs, presenting a compelling case for strategic investors. This article argues that Snowflake's current price-to-sales (P/S) ratio, combined with its robust remaining performance obligations (RPO) and dollar-based net revenue retention (DBNRR), positions it as a prime candidate for a "buy the dip" strategy.

Valuation Metrics: A Dip Amidst Strong Fundamentals

Snowflake's Q4 2025 product revenue is projected to reach $1.195 billion to $1.2 billion, reflecting a 27% year-over-year increase. This growth is underpinned by a 125% DBNRR, a metric that underscores the company's ability to retain and upsell to its existing customer base. Meanwhile, RPO-a critical indicator of future revenue- surged to $7.88 billion as of October 31, 2025, marking a 37% year-over-year jump. This acceleration in RPO growth, despite a slight deceleration in product revenue, signals strong demand and long-term contract value.

Yet, Snowflake's valuation remains a point of contention. The company's net margin of -24.24% and return on equity (ROE) of -13.05% highlight ongoing profitability challenges. However, these metrics must be contextualized against its consumption-based business model, which prioritizes top-line growth over short-term margins. Analysts like Argus and Wedbush have upgraded their ratings to "Buy", with price targets ranging from $270 to $300, while others, such as Barclays, remain cautious. The 12-month average price target of $285.57 suggests a market that is cautiously optimistic about Snowflake's long-term potential, particularly with strategic moves like the acquisition of Observe and partnerships with Google Cloud.

P/S Ratio: A Historical Dip Amid Volatility

Snowflake's current P/S ratio of 16.01 as of January 13, 2026, represents a significant decline from its five-year high of 171.62 but remains above its median of 24.19. In 2025, the average P/S ratio hovered around 17.10, with fluctuations such as 21.01 in October 2025 and 16.67 in January 2025. This downward trend in the P/S ratio, coupled with Snowflake's 29.21% revenue growth in 2025 (reaching $3.626 billion), suggests a valuation that is becoming more attractive relative to its historical averages.

The P/S ratio is particularly relevant for high-growth SaaS companies like Snowflake, where revenue scalability often justifies higher multiples. While Snowflake's P/S of 16.01 ranks worse than 91.08% of its Software industry peers, this metric should be viewed through the lens of its RPO and DBNRR. For instance, the $7.88 billion RPO as of December 2025 implies a revenue runway that could justify a higher multiple over time, especially if the company continues to convert RPO into recurring revenue.

Strategic Timing: Balancing Valuation and Growth

The case for "buying the dip" hinges on the interplay between Snowflake's current valuation and its long-term growth trajectory. The company's RPO growth has consistently outpaced its product revenue growth, a trend that reflects its ability to secure multi-year contracts and expand within existing customer accounts. For example, in Q3 2025, Snowflake reported $1.21 billion in revenue, a 28.7% year-on-year increase, while RPO growth accelerated to 37% YoY. This divergence suggests that the market may be underappreciating the stickiness of Snowflake's platform.

Moreover, Snowflake's consumption-based model inherently smooths out quarterly volatility, as noted by its CFO during the Q4 2025 earnings call. This model aligns with the company's strategic focus on long-term customer relationships, which are reinforced by its 125% DBNRR. Investors who prioritize recurring revenue potential over short-term profitability may find this dynamic particularly appealing.

Conclusion: A Calculated Bet on Resilience

While Snowflake's current valuation reflects skepticism about its path to profitability, the company's RPO and DBNRR metrics tell a different story. The $7.88 billion RPO as of December 2025, combined with a P/S ratio that has dipped below its five-year median, creates a scenario where the risk-reward balance tilts in favor of long-term investors. Strategic buyers who can look past near-term margin pressures may find themselves well-positioned to capitalize on Snowflake's recurring revenue engine and expanding market share.

As the cloud data landscape continues to evolve, Snowflake's ability to innovate-through acquisitions like Observe and partnerships with Google Cloud-further strengthens its case as a buy-the-dip opportunity. For investors with a multi-year horizon, the current valuation dip appears to be a temporary correction rather than a fundamental shift in the company's long-term potential.