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Is Snowflake (SNOW) Stock Overvalued?

McLain Capital recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -6.3% for the quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 8.93% in the same quarter. However, you should check out McLain Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners this year.

In the said letter, McLain Capital highlighted a few stocks and Snowflake Inc. (NYSE:SNOW) is one of them. Snowflake Inc. (NYSE:SNOW) is a cloud-based data-warehousing company. Snowflake Inc. (NYSE:SNOW) stock lost 1.4% in the last five trading days and on October 13th it had a closing price of $249.61. Here is what McLain Capital said:

“The recent IPO of Snowflake (SNOW) provides a great example of the market’s current state of euphoria and suspension of sanity. Snowflake’s core business is a promising cloud-based data storage and analytics service termed “data warehouse-as-a-service”. Having IPO’d last month at vastly oversubscribed level of $120/share, its share price more than doubled the first day of trading and has since settled at ~$240/share. However, with an $85bln fully diluted market capitalization on a mere $400mm in trailing twelve month sales, Snowflake is valued at an astronomical 212x revenue. Assuming Snowflake will, in 10 years, trade at a generous 30x earnings and earn 15% net margins, revenues would have to grow by a factor of 122x for investors to earn just a 10% annual rate of return. Notably, these assumptions would require that Snowflake grow revenues significantly faster than any non-biotech public company has in history – calling that a heroic assumption would be an understatement. We have no current position in Snowflake.”

Our calculations showed that Snowflake Inc. (NYSE:SNOW) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.