Considering Snowflake's Shares Appear Overpriced? This Diagram Could Alter Your Perspective.
Snowflake (SNO, -2.95%) has seen a lot of action since its September 2020 debut on the stock market. Its journey has included a surge during the 2021 bull market, a dip following an unexpected leadership shift, and generally being perceived as an overpriced stock.
However, one important indicator took a hit during its dip earlier this year. Now, with a renewed sense of trust in the new CEO and the company's focus on artificial intelligence (AI), investors are regaining their confidence. This newfound optimism could potentially boost the stock's value, given its relatively low valuation according to one metric.
Why Snowflake isn't as costly as it seems
Investors should reconsider the idea that Snowflake is overpriced due to its price-to-sales ratio (P/S) of 16.
Indeed, convincing investors that 16 times sales is a bargain, even when discussing top-notch stocks, is a tough task. It's not helped by the company's continuous losses, which leave it without a price-to-earnings (P/E) ratio, or the fact that the stock trades at 19 times its book value.
However, Snowflake's 16 P/S ratio isn't too far off its record low valuation. And that's not all. Before this dip, investors were willing to pay much more for Snowflake's sales multiple, driving it up to a staggering 183 in December 2020. The current sales multiple of 16 represents a more than 90% discount from its all-time high.
Moreover, CEO Sridhar Ramaswamy seems to be winning over investors. After he attributed the company's growth in the fiscal third quarter of 2025 (ending Oct. 31) to AI, the stock surged 25% following the announcement and has held onto most of those gains.
Lastly, investors should recall that Snowflake's stock traded at around a 25 P/S ratio before the leadership change in late February. Considering the AI-driven growth, investors might want to consider buying the software-as-a-service (SaaS) stock before investor confidence levels push the sales multiple back to levels experienced under the previous leadership team.
Investors may want to reconsider their perception of Snowflake's high price due to its lower-than-expected price-to-sales ratio (P/S) of 16, despite the company's continuous losses. With the new CEO's focus on artificial intelligence (AI) and the stock's relatively low valuation, some money managers are starting to see it as a potential investment opportunity in the finance sector.
As the sales multiple of 16 represents a significant discount from its all-time high, some financial analysts argue that Snowflake's software-as-a-service (SaaS) stock might be undervalued. Moreover, the company's recent surge in growth following the announcement of AI-driven growth could indicate a renewed interest in investing money in Snowflake, given its competitive position in the tech industry.
