Snowflake (NYSE: SNOW) stock price has formed the dreaded death cross pattern as concerns about its growth trajectory continued. It crashed to a low of $144.50 this week, down by over 35% from its highest point this year, meaning that it is in a deep bear market.
Snowflake growth concernsSnowflake is a top Warren Buffett-backed company that provides Software as a Service (SaaS) solutions to companies from around the world.
It has over 9,437 clients in all industries. Some of its top customers are firms like AT&T, Cisco, Komatsu, and Canva.
Its solution allows companies to consolidate data into a single platform, which saves them time and money in the long term.
Snowflake has been one of the fastest-growing companies in the past few years. Its annual revenue moved from over $267 million in 2019 to over $2.86 billion last year. Analysts expect that its annual revenue will move to $3.43 billion and $4.2 billion in 2023 and 2024.
However, this revenue growth has happened at a great cost, which explains why its losses have mounted over the years. Its total loss stood at $836 million in 2023 from $348 million in 2019.
The management believes that Snowflake has more room to grow. They note that it had 642 of the Forbes Global 2000 companies as customers in Q4’23 and 691 in Q4’24. That means that it has a large total addressable market.
The company also believes that it has a role to play in the artificial intelligence (AI) industry. This week, it unveiled Snowflake Arctic, a product that it hopes will help companies deploy AI models at a faster pace.
Still, there are concerns about the company’s valuation. It has a market cap of over $51 billion, meaning that it is has a forward price-to-sales ratio of 15, which is substantially higher than its peers.
For SaaS companies, one of the best valuation approaches is known as the Rule of 40. The idea is that a company’s revenue growth and its profit margin should be above 40.
Recent data shows that the company’s revenue growth in the last quarter was 35% while its net income margin was 29%, giving it a total of 6, meaning that the company is severely overvalued.
Snowflake stock price forecast
Turning to the daily chart, we see that the SNOW share price peaked at $237 earlier this year and has now tumbled to below $160. The stock has formed a death cross pattern as the 200-day and 50-day Exponential Moving Averages (EMA) made a bearish crossover.
In most cases, this pattern is usually one of the most bearish ones in the market. However, on the positive side, the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards, which is a sign of a bullish divergence.
Therefore, the outlook for the stock is bearish as the focus shifts to its upcoming financial results on May 24th. If this happens, the next point to watch will be at $128.15, its lowest swing in March last year.
The post Snowflake stock forecast: SNOW just formed a scary pattern appeared first on Invezz
