Shareholders of Snowflake would probably like to forget the past six months even happened. The stock dropped 25% and now trades at $172.79. This might have investors contemplating their next move.

Following the drawdown, is now a good time to buy SNOW? Find out in our full research report, it’s free.

Why Is Snowflake a Good Business?

Named after the unique architecture of its data warehouse which resembles a snowflake pattern, Snowflake (NYSE: SNOW) provides a cloud-based data platform that enables organizations to consolidate, analyze, and share data across multiple cloud providers.

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Snowflake’s billings punched in at $2.21 billion in Q4, and over the last four quarters, its year-on-year growth averaged 36%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Outstanding Retention Sets the Stage for Huge Gains

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Snowflake’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 125% in Q4. This means Snowflake would’ve grown its revenue by 24.8% even if it didn’t win any new customers over the last 12 months.

Snowflake has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

3. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Snowflake’s revenue to rise by 26.3%. While this projection is slightly below its 29.2% annualized growth rate for the past two years, it is eye-popping and implies the market is forecasting success for its products and services.

Final Judgment

These are just a few reasons why we think Snowflake is a high-quality business. With the recent decline, the stock trades at 10.1× forward price-to-sales (or $172.79 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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