Shares of Snowflake (NYSE: SNOW) have come too far, too fast.
So says Summit Insights analyst Srini Nandury. On Monday, Nandury urged investors to sell Snowflake stock. He sees shares hitting $175, down from their current price near $235. If he's correct, shareholders in the recent initial public offering could sustain losses of roughly 25%.
The cloud-based data-warehousing company priced its IPO shares at $120. They surged as high as $319 on their first day of trading on Sept. 16 before trending lower in recent days. With its shares now trading for more than 70 times his sales projection for the year ahead, Nandury argues that Snowflake is now the "most expensive name in all tech."
He notes that its price-to-sales metrics are far higher than those of fellow highfliers Zoom Video Communications and Shopify, which trade for roughly 40 and 30 times sales estimates, respectively, even though those companies have stronger competitive advantages within their industries.
In turn, Nandury warns that Snowflake's stock could suffer a "violent sell-off."
Will Snowflake's stock price fall to $175?
It's hard to argue against Nandury's claims that Snowflake is a very expensive stock. And when stocks are temporarily valued too highly by investors, they often come crashing down. So it's certainly possible that Snowflake's shares could fall back to $175, which would still be more than 45% higher than what it priced its IPO at just a few days ago.
That said, Snowflake does have some notable backers -- such as Warren Buffett's Berkshire Hathaway and cloud software titan salesforce.com -- that don't appear to have any intention of selling anytime soon. So while Snowflake's near-term stock performance could be rocky, there are some excellent investors who are optimistic about its long-term growth.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Salesforce.com, Shopify, and Zoom Video Communications. The Motley Fool recommends Snowflake Inc and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.