Snowflake Shows No Signs of Melting. Is It Time to Buy the Stock?

Snowflake (NYSE: SNOW) turned in another strong quarterly report recently and issued an upbeat outlook, once again demonstrating that the cloud-based data warehousing and analytics company looks like it will emerge as an artificial intelligence (AI) winner. Despite the company's strong performance, the stock has traded down more than 20% so far this year.

Let's take a closer look at Snowflake's Q4 results and prospects to see if now is the time to buy the stock.

Image source: Getty Images.

Strong revenue growth continues

In a world where AI and especially AI agents need clean, structured data, Snowflake's cloud-based data warehousing architecture, which lets its customers quickly and securely access and share data in real time, is becoming increasingly important. Meanwhile, its Snowflake Intelligence and Cortex Code coding agent look set to continue to drive growth. Over 2,500 accounts now use Snowflake Intelligence, nearly doubling quarter over quarter.

In Q4, Snowflake once again saw robust sales growth, with quarterly revenue soaring 30% year over year to $1.28 billion. Product revenue also rose by 30% to $1.23 million. Adjusted earnings per share (EPS) edged up to $0.32 from $0.30 a year ago, coming in ahead of the $0.27 consensus.

Its net revenue retention rate came in at an impressive 125% over the past 12 months, the same as Q2 and Q3. A number above 100% shows that existing customer usage is rising after taking into account any customer churn.

Snowflake also continues to add new customers. In the quarter, it landed 740 new customers, up 40% year over year. Customers spending more than $1 million rose 27% to 733, while it now has 56 customers shelling out more than $10 million a year with it, up 56%. It also signed its largest-ever deal in the quarter, worth over $400 million.

Looking ahead, Snowflake forecasted full-year product revenue to be approximately $5.66 billion, representing a 27% increase. It expects adjusted operating margins of 12.5%.

For fiscal Q1, it projected product revenue of between $1.262 billion and $1.267 billion, equating to growth of about 27%. It's looking for adjusted operating margins of 9%.

Is Snowflake's stock a buy?

Although its share price is down this year, Snowflake's valuation hasn't been decimated like many software-as-a-service (SaaS) stocks. The stock trades at a forward price-to-sales (P/S) multiple of 10 times this fiscal year's analyst estimates, which, while not outrageous given its high 20%-to-low 30% revenue growth, isn't in the bargain bin like many in the sector.

As such, I'd balance the stock's continued strong growth opportunity with the new lower multiple the SaaS sector is seeing. It's better positioned than many in the sector, but the stock's upside in the medium term could be capped by its current valuation.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.