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The Ratings Game: Snowflake stock nabs an upgrade as ‘quality matters’ in volatile markets


Snowflake Inc. has won a flurry of praise recently from analysts who see the selloff in software stocks as an opportunity for investors to buy into companies with strong stories.

The latest analyst to join the choir is Loop Capital’s Mark Schappel, who upgraded Snowflake’s stock SNOW, -4.86% to buy from hold in a Tuesday note to clients. Schappel likes Snowflake’s fast growth profile off a large base, as he expects the company to log more than $1.2 billion in revenue for its current fiscal year, which ends this month.

“Quality matters during periods of volatility and market stress, which means investors should focus on companies that are leaders in their respective categories, have few meaningful competitors, have margin expansion stories in place and have strong balance sheets,” he wrote. That mindset brings him to Snowflake.

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Schappel admits that Snowflake’s stock “still isn’t ‘cheap.’” The pullback in software names has helped drive Snowflake shares down 32% from their 52-week intraday high of $405 achieved late last year.

But even though shares are trading at 25 times enterprise value to estimated 2023 revenue, Schappel likes the company’s rapidly growing total addressable market and competitive positioning. He still sees “sizable market opportunity” in cloud-data warehousing and believes that the company sits on an “emerging” opportunity with its Data Cloud business that allows for data sharing.

Despite the upgrade, Snowflake shares are off 2.4% in Tuesday morning trading.

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Analysts at William Blair and Barclays both recently turned bullish on Snowflake’s shares as well, with the Barclays analyst also citing the company’s more attractive valuation and the potential in data sharing.

Snowflake shares are down 21.3% over the past three months as the S&P 500 SPX, -1.71% has lost 5.7%.

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