Think Snowflake Stock Is Expensive? This Chart Might Change Your Mind

Snowflake (SNOW) has been a darling of the tech industry, but its stock price has taken a tumble recently, leading some investors to question its valuation. While Snowflake's price-to-sales (P/S) ratio of 14.2 might seem high, a closer look at the data reveals that it may be undervalued compared to its peers.

Snowflake's revenue growth has been impressive, with a year-over-year (YoY) growth rate of 33% in the most recent quarter. This growth is higher than that of many of its peers, including Palantir (21%), CrowdStrike (33%), and The Trade Desk (28%). Despite this strong growth, Snowflake's P/S ratio is lower than that of these companies, suggesting that it may be undervalued.



One reason for Snowflake's relatively low P/S ratio is its focus on data warehousing and sharing. As artificial intelligence (AI) becomes increasingly important, the demand for large, diverse data sets is growing. Snowflake's products cater to this demand, providing a significant tailwind for its business.

Another factor contributing to Snowflake's valuation is its strong growth rate. While investors may be concerned about the slowdown in growth, it is essential to remember that Snowflake is approaching $1 billion in quarterly revenue. Growing by 50% or more in a quarter becomes more challenging as the company scales, and investors should adjust their expectations accordingly.

Snowflake's valuation has evolved significantly over time, with its P/S ratio reaching an all-time low of 14.2 in recent months. This is a stark contrast to its historical high of 73.3 in December 2020, indicating a substantial decrease in its valuation. Compared to its peers in the data warehousing and analytics sector, Snowflake's current P/S ratio is lower than that of Palantir (26.7), CrowdStrike (19), and The Trade Desk (22.1), despite its higher revenue growth rate of 33%. This suggests that Snowflake may be undervalued relative to its peers, making it an attractive investment opportunity.

In conclusion, while Snowflake's P/S ratio may seem high at first glance, a closer examination of the data reveals that it may be undervalued compared to its peers. Its strong revenue growth, focus on data warehousing and sharing, and relatively low valuation make it an attractive investment opportunity. As AI continues to grow in importance, Snowflake's products will remain in high demand, further driving its business forward.