This Tech Stock Could Remain Range-Bound After Its IPO

The year has had its share of tech initial public offerings, and usually, these tech stocks soar after their IPO. Snowflake Inc (NYSE: SNOW) surged past its IPO price of $120, although since then, it has been range-bound in the $240 to $250 area. Plenty of experts are touting other software stocks instead of Snowflake, so does that mean it’s fully valued? The analyst commentary on the company is mixed.

At least nine analysts initiated coverage of Snowflake Inc with the equivalent of a buy rating, while at least seven initiated with the equivalent of a neutral rating, illustrating just how split the views are on this stock.

Strong numbers for Snowflake Inc

Analyst David Hynes Jr. of Canaccord Genuity is one of the analysts who have a hold or neutral equivalent rating on Snowflake stock. In a note today, he pointed out that the company has strong numbers. Its product has been on the market for just six years, but the company has a more than $530 billion revenue run rate. Hynes expects the revenue to grow 113% this year and more than 90% next year.

He added that the average Snowflake Inc customer is spending about 60% more with the company each year. Hynes expects the company to reach sustainable profitability in its free cash flow within six quarters. He describes Snowflake as "one of the most impressive stories we have come across in our 15 years covering the space."

Hynes also had an explanation for why Snowflake Inc seems to have topped off. He said investors pressed its valuation to 47 times EV/ R on estimated 2022 numbers, which is an extreme that's rarely seen. He added that there may be logic to that optimism because Snowflake will probably be a much larger business in the coming quarters and years.

However, he also said that it feels as if Snowflake has "already pulled forward several years of value creation." For that reason, he tacked on a Hold rating with $250 price target. He believes the company's stock will remain range-bound until its fundamentals catch up with its shares.

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