Snowflake Inc. (NYSE:SNOW) Shares Could Be 34% Below Their Intrinsic Value Estimate

Simply Wall St.11-26 20:00

Key Insights Snowflake's estimated fair value is US$261 based on 2 Stage Free Cash Flow to Equity Current share price of US$171 suggests Snowflake is potentially 34% undervalued Analyst price ...

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(NYSE:SNOW) Shares Could Be 34% Below Their Intrinsic Value Estimate","media":"Simply Wall St.","content":"<div>\n<p>Key Insights\n\n Snowflake's estimated fair value is US$261 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$171 suggests Snowflake is potentially 34% undervalued \n  Analyst price ...</p>\n\n<a href=\"https://finance.yahoo.com/news/snowflake-inc-nyse-snow-shares-120024684.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Snowflake Inc. (NYSE:SNOW) Shares Could Be 34% Below Their Intrinsic Value Estimate</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSnowflake Inc. (NYSE:SNOW) Shares Could Be 34% Below Their Intrinsic Value Estimate\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-26 20:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/snowflake-inc-nyse-snow-shares-120024684.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Snowflake's estimated fair value is US$261 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$171 suggests Snowflake is potentially 34% undervalued \n  Analyst price ...</p>\n\n<a href=\"https://finance.yahoo.com/news/snowflake-inc-nyse-snow-shares-120024684.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://finance.yahoo.com/news/snowflake-inc-nyse-snow-shares-120024684.html","article_id":"2486074807","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/SoVmzdbdykIW0iha2Adaow--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/f7f8b4185e66ce4ecc9786e684bcd048"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2486074807","pubTimestamp":1732622424,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Snowflake's estimated fair value is US$261 based on 2 Stage Free Cash Flow to Equity. Current share price of US$171 suggests Snowflake is potentially 34% undervalued. Analyst price target for SNOW is US$180 which is 31% below our fair value estimate. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Snowflake Inc.  as an investment opportunity by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow  model on this occasion. Before you think you won't be able to understand it, just read on!We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. 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(NYSE:SNOW) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. \n We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. \n See our latest analysis for Snowflake \n Is Snowflake Fairly Valued? \n We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF ($, Millions) \nUS$899.4m\nUS$1.15b\nUS$1.49b\nUS$2.22b\nUS$3.19b\nUS$3.95b\nUS$4.64b\nUS$5.24b\nUS$5.75b\nUS$6.20b\n\n\nGrowth Rate Estimate Source\nAnalyst x24\nAnalyst x25\nAnalyst x13\nAnalyst x4\nAnalyst x3\nEst @ 23.77%\nEst @ 17.43%\nEst @ 12.98%\nEst @ 9.88%\nEst @ 7.70%\n\n\n Present Value ($, Millions) Discounted @ 7.4% \nUS$838\nUS$999\nUS$1.2k\nUS$1.7k\nUS$2.2k\nUS$2.6k\nUS$2.8k\nUS$3.0k\nUS$3.0k\nUS$3.0k\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$21b\n The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.4%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$6.2b× (1 + 2.6%) ÷ (7.4%– 2.6%) = US$134b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$134b÷ ( 1 + 7.4%)10= US$66b\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$87b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$171, the company appears quite undervalued at a 34% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. \n\n\n\n  NYSE:SNOW Discounted Cash Flow November 26th 2024\n \n\n The Assumptions \n The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Snowflake as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.4%, which is based on a levered beta of 1.150. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Snowflake\n\n\nStrength\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for SNOW.\n\n\n\nWeakness\n\n No major weaknesses identified for SNOW.\n\n\n\nOpportunity\n\nHas sufficient cash runway for more than 3 years based on current free cash flows.\n\n\nTrading below our estimate of fair value by more than 20%.\n\n\n\nThreat\n\nNot expected to become profitable over the next 3 years.\n\n\nWhat else are analysts forecasting for SNOW?\n\n\n\n Looking Ahead: \n Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Snowflake, there are three fundamental factors you should explore: \n\n Risks: For instance, we've identified   3 warning signs for Snowflake (1 is a bit unpleasant)  you should be aware of. \n Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for SNOW's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. \n Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! \n\n PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486074807"}