Stock Market

Snowflake (NYSE:SNOW) stock is dropping following their Investor Day event in which management unveiled very conservative long-term financial targets. What’s the problem with this? Well, SNOW shares are priced aggressively, not conservatively.

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But honestly, this dip has a silver lining that most people aren’t seeing — you can get SNOW stock at a discount, because we think the stock has massive potential the market isn’t seeing.

There are three reasons why we think there’s still plenty of driving force behind this cloud-based data platform company despite investor concerns.

Let’s take a look.

SNOW Stock’s True Value

One, Snowflake will be a long-term winner at the epicenter of the emerging Intelligence Economy. Indeed, the company seeks to build the infrastructure foundation upon which enterprises will store data. This data will then drive business decisions.

Their business lies at the very core of “business,” so the growth potential of Snowflake is enormous. One day, this will be an enterprise ubiquity. In order for a company to survive in the increasingly data-driven world of the 2020s, they’ll need Snowflake.

Two, the team’s financial targets don’t reflect what will actually come to pass. So, yes, considering the huge potential here, the long-term targets look conservative, as previously mentioned. But that’s totally normal for Snowflake, whose management team likes to underpromise and overdeliver.

They are targeting $10 billion in revenue by the end of 2029’s fiscal year. We were sitting around $11 billion, so we think their target is a good baseline, but that numbers will likely come in above when all is said and done.

The real shocker was the operating margin guide — fiscal year 2029 targets of 75% gross margins and only 10% operating margins. That’s a 65% operating expense rate, which seems way too big.

We were sitting at 75% gross margins as well, but 20% operating margins. We reaffirm the belief that 20%, not 10%, is the most likely destination for operating margins by the end of the decade.

And three, SNOW stock’s valuation is fine. If our targets are right, the company’s stock is fairly valued. If their conservative targets are right, the stock is undervalued. We believe Snowflake will overperform their knowingly-conservative projections, meaning the stock is undervalued.

So, despite investor concerns following Snowflake’s Investor Day meeting, we believe the company will overdeliver in due time and that SNOW stock is fairly valued.

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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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