Don’t Give Snowflake the Cold Shoulder

Snowflake (NYSE:SNOW) stock is one of the most interesting names in the tech space. The company was one of the largest software initial public offerings (IPOs) of all time when it came out last year. And traders initially warmed up to SNOW stock, with the share price more than doubling after its debut.

But then the bad news started. Investors started to question valuations for tech stocks in general. That particularly hit Snowflake, as it had one of the most aggressive set of embedded expectations out there. As it would turn out, even triple-digit revenue growth wouldn’t be enough to keep SNOW stock from feeling the chills.

Now though, with Snowflake’s stock having dropped, it’s time to give it another look. Because, despite the slumping share price, those sterling fundamentals remain firmly in place.

Fantastic Quarterly Earnings

Snowflake is one of the fastest growing software companies out there. A lot of software firms grow at 25% a year, or even 50% per year. However, Snowflake is in another league. This most recent quarter, it grew revenues 110% year-over-year. Additionally, its remaining performance obligations grew 206% year-over-year, showing that Snowflake has a huge backlog of business ahead of it as well.

Zooming in on the revenue numbers, there are several signs that the revenue growth will last even as the Covid-19 induced digital boom slows. For one thing, Snowflake’s net revenue retention rate is a stunning 168%. This means that, on average, Snowflake’s existing customers spent 68% more on services this year than they did last year. This is part of the magic of the Snowflake business model. It charges for usage on a metered basis, so as its customers grow, they automatically spend more on Snowflake’s services.

The company has another pillar to its growth: international business. Business in Europe, Middle East, and Africa (EMEA) and Asia-Pacific (APAC) has grown consistently with revenue with each successive quarter. Anyone claiming that Snowflake’s business is starting to mature — at least in the U.S. — needs to look abroad to see how much upside Snowflake still has.

Snowflake’s Broad Vision

I detailed CEO Frank Slootman’s unparalleled track record in my previous article on Snowflake. Back in the early 2000s, Slootman turned around a struggling data storage firm, Data Domain, and sold it to the industry leader for billions. He then moved to ServiceNow (NYSE:NOW) where the stock more than tripled under his watch. Slootman came back to the software industry after several years off to take the helm at Snowflake.

He said he simply couldn’t turn down Snowflake role because the company’s product offering and addressable market was so huge. Snowflake is seeking to totally overhaul the market for cloud data storage, security, and analytics. If successful, Snowflake can displace many rivals in one fell swoop while building a much broader ecosystem.

As seen in the company’s operating results, Snowflake is signing up tons of new customers. Its international push is making huge waves. And its existing customers are dramatically increasing their spending on the Snowflake platform. Simply put, Snowflake is one of the best-positioned tech companies to become a future giant.

SNOW Stock Verdict

Looking at its stock price, Snowflake is going through a long winter. Snowflake dropped from $429 per share in December to around half that now. The people selling shares today simply don’t care about long-term fundamentals. Short-term market concerns instead rule the day.

But if you look at the underlying business performance, it tells a totally different story. This happens with great companies sometimes. As famous value investor Benjamin Graham said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Right now, traders are voting against software companies and hyper-growth investments. However, investors that see the bigger picture will realize that Snowflake is becoming a dominant force in the cloud. The share price will reflect that in due time.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.