Snowflake Gets Downgrade From Deutsche Bank on Valuation

'Winter is coming' for the stock as it soared in recent days without its fundamentals changing, Deutsche Bank says.
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Snowflake  (SNOW) - Get Report shares fell sharply Friday after Deutsche Bank analyst Patrick Colville downgraded the cloud service provider to hold from buy.

The analyst kept his price target at $335.

"Winter is coming," as the stock has soared in recent days without its fundamentals changing, he wrote in a report. Snowflake recently traded at $351.08, down 5.95%. But it has jumped 49% in the last month, including that drop.

As of Thursday, the stock traded around 52 times estimated fiscal 2022 sales, so the risk-reward ratio is now balanced, Colville said. Moreover, the March expiration of the lock-up from Snowflake’s September initial public offering will boost the company’s outstanding share count, he said.

The stock’s potential “may be limited as we wrap up 2020 and investors look to protect their year,” Colville said, according to Bloomberg. To be sure, looking longer-term, Snowflake is “in the sweet spot for key secular trends of this decade,” he said.

Earlier this month, news of stronger-than-expected third-quarter sales sparked price-target increases by analysts.

Snowflake’s revenue totaled $159.6 million in the quarter, up a whopping 115% from last year and above analysts’ forecast of $147.5 million.

Morgan Stanley raised its one-year price target to $265 from $220 on what it sees as “strong” consumption trends behind Snowflake’s sales growth. Morgan Stanley has an equal-weight rating.

Piper Sandler raised its target to $312 from $264, saying it was “impressed” that Snowflake’s product gross margin exceeded 70% for the first time. But it cautioned that a lack of more upward revision to forward estimates suggests “balanced” risk-reward. Piper Sandler has an overweight rating.