Snowflake Inc. (SNOW) is a global provider of cloud-based data platforms. The company's platform offers a Data Cloud, which allows customers to consolidate data into a single source and is used by various organizations across industries. The company’s shares have gained 34.9% over the past three months.

The stock soared following the release of its second-quarter results. SNOW's revenue came in at $497.25 million, up 82.7% year-over-year. In addition, its total number of customers increased 36.3% to 6,808, and the number of customers contributing $1 million or more to revenue increased by 112% to 246.

However, the hotter-than-expected inflation report and recent Fed interest rate hike have led to a massive sell-off in tech stocks.

SNOW has plummeted 45.5% over the past year and 49.3% year-to-date to close its last trading session at $171.79. Additionally, the stock is currently trading 57.6% below its 52-week high of $405, which it hit on November 17, 2021.

Here's what could shape SNOW's performance in the near term:

Poor Bottom-line Performance

SNOW’s net loss surged 17.5% from the prior-year quarter to $222.81 million. Its loss per share increased 9.4% year-over-year to $0.70. Furthermore, its cash and cash equivalents came in at $906.66 million, representing a year-over-year decline of 16.5% for the six months ended July 31.

Negative Profit Margins

SNOW's trailing-12-month CAPEX/Sales multiple of 1.1% is 55.4% lower than the industry average of 2.4%. Its ROA, net income margin, and ROE are negative 9.6%, 41.3%, and 13%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.25% is 60.8% lower compared to its industry average of 0.64%.

Premium Valuation

In terms of forward non-GAAP P/E, the stock is currently trading at 1017.35x, 5896.2% higher than the industry average of 16.97x. Also, its forward EV/Sales of 25.67x is 933.2% higher than the industry average of 2.48x. Moreover, SNOW's forward Price/Sales of 26.94x is 1006.4% higher than the industry average of 2.43x.

POWR Ratings Reflect Bleak Outlook

SNOW has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SNOW has a D grade for Quality, Value, and Stability. Its poor profitability is in sync with the Quality grade. The company’s higher-than-industry valuation multiples are consistent with the Value grade. In addition, the stock beta of 1.05 justifies the Stability grade.

Of the 80 stocks in the D-rated Technology – Services industry, SNOW is ranked #72.

Beyond what I've stated above, you can view SNOW ratings for Growth, Momentum, and Sentiment here.

Bottom Line

SNOW's strong product revenue growth and high net revenue retention rate have recently attracted a lot of investor attention, but its lackluster bottom-line performance is concerning. In addition, Street expects its EPS to decline 66.7% year-over-year to $0.43 in the next quarter ending January 2022.

Given its premium valuation and negative profit margins, it may be prudent to avoid the stock now.

How Does Snowflake Inc. (SNOW) Stack Up Against its Peers?

While SNOW has an overall D rating, one might want to consider its industry peers, Jabil Inc. (JBL), Celestica Inc. (CLS), and Sanmina Corporation (SANM), which have an overall A (Strong Buy) rating.

SNOW shares were trading at $169.27 per share on Friday afternoon, down $2.52 (-1.47%). Year-to-date, SNOW has declined -50.03%, versus a -22.31% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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