Stock in Snowflake (NYSE: SNOW) plummeted after the company's sales forecast was poor in its most recent business update. Shares have fallen 20% so far this year, but KeyBanc analysts still see a good opportunity to purchase.
KeyBanc began covering the stock with a buy recommendation and a price target of $185, which are typical expectations for the stock's potential movement in the next twelve months or so
A 16% increase from Thursday's closing price is reflected in the revised price objective. As more and more businesses move their data from on-premises systems to the cloud, the firm sees good future prospects for the cloud provider.
The Case for Purchasing Snowflake Shares The stock's value seems to be based on Snowflake's 33% year-over-year product revenue increase in the fourth quarter, but management expects growth to drop to 26% to 27% in the first quarter.
Better returns should be on the horizon as the stock sell-off reset expectations. The continued move to cloud services, according to KeyBanc, will ensure that the company's long-term growth rate remains consistent at 20%.
Without a doubt, there is enormous potential for growth in the cloud business in the distant future. Canalys predicts that global spending on cloud infrastructure services will reach $290 billion in 2023
and that this figure will rise to 20% in 2024, from 18% in 2023. With more and more businesses searching for better data management solutions in anticipation of AI, this bodes well for Snowflake's bottom line.
Although Snowflake's top-line growth has slowed significantly in recent years, investors will likely start to focus on the company's growing profitability if sales growth settles in the 20%-plus area. With Snowflake's continued growth, the analyst's price target looks feasible, given the stock was trading at a decent valuation before the sell-off.
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