Stocktake: Snowflake stock looks bubbly

The prevailing attitude among investors now is one of buy high, sell higher

Snowflake  is a cloud-computing company. Photograph: Gabby Jones/Bloomberg

Snowflake is a cloud-computing company. Photograph: Gabby Jones/Bloomberg

 

Snowflake’s initial public offering (IPO) last week did nothing to dispel the idea that things are getting bubbly in techland. Shares in the cloud-computing firm more than doubled on its market debut last Wednesday, giving it a market capitalisation in excess of $70bn – almost six times greater than the $12bn it was valued at in February.

The world has changed since February, but has it changed that much? Snowflake is being valued at roughly 180 times sales. That’s an astonishing multiple. Snap was valued at 55 times sales during its 2017 IPO, a valuation that staggered many analysts. Facebook traded on 25 times sales when it floated in 2012. Of course, talk of valuation is passé right now. Baker Avenue Asset Management last week predicted Snowflake shares could go onto double if the company continues to perform well. Bulls point to stocks like Tesla, which has skyrocketed despite innumerable warnings regarding its stratospheric valuation.

Still, buying stocks with very high price-sales ratios has historically been a losing strategy. Right now, investors don’t seem to care; the prevailing attitude is one of buy high, sell higher.

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