Snowflake CEO purchases $5 million worth of company shares, signaling an opportunity to buy during market dip

Snowflake CEO purchases  million worth of company shares, signaling an opportunity to buy during market dip

SnowflakeIt is (NYSE: SNOW) new CEO Ramaswamy Sridhar has been busy besides running his company. Recently, he completed the purchase of more than 31,000 shares for just under $159 on the open market. This equates to around $5 million, so it makes an obvious statement about Snowflake’s stock price.

This is significant because Snowflake’s stock fell nearly 20% in the day following its fiscal 2024 fourth-quarter earnings report (ending Jan. 31), when outgoing CEO Frank Slootman announced his retirement. This report was mostly positive, and the negative reaction was largely due to Slootman’s unexpected retirement.

As the new CEO loads up on the stock, is this your sign to also buy the dip?

Snowflake’s business is well positioned for today’s environment

Legendary investor Peter Lynch once said, “Insiders may sell their stocks for many reasons, but they buy them for only one: They think the price will rise.” » That’s a pretty good foundation to build on, but there’s more to it than that.

A company’s CEO has more information about future demand and business flows than any investor. So it is wise to be careful if they think stocks will rise based on their inside information and buy stocks in the open market.

Snowflake is also a vital software platform for artificial intelligence (AI). AI models require large amounts of data, but collecting and storing this data efficiently can be difficult. This is where Snowflake comes in.

Its data cloud platform helps its users collect data in many different formats, store it on the cloud provider of their choice, and use the data to power programs or perform data science. Snowflake has established itself as a vital product in the data age, and its growth is far from over.

Snowflake’s latest results were strong from a growth perspective

Snowflake’s results for the fourth quarter of fiscal 2024 were strong despite the market reaction. Product revenue grew 33% year over year to $738 million, and management gave guidance for revenue growth of 27% in the first quarter.

While Snowflake was still not profitable in the fourth quarter (it had an operating margin loss of 36%), it improved from last year’s deficit margin of 41%. Still, it will take some time before Snowflake investors make a profit, so it may not be your stock if you only want to invest in profitable companies.

Snowflake CEO purchases  million worth of company shares, signaling an opportunity to buy during market dip

After the sell-off generated by these results, Snowflake’s price-to-sales (P/S) valuation plummeted to one of the lowest levels in the company’s history. Today, it still trades at just under 19 times sales, which is a very expensive stock overall. But it’s a significant drop from the high 20s range it was trading in just days before the report was released.

So the question arises: is the premium you have to pay for the stock worth it? I will side with Ramaswamy Sridhar and say yes. Snowflake has become an integral part of data collection and storage, making it indispensable software. While the business world is only at the forefront of the AI ​​revolution, we have yet to realize the amount of data that will be needed to create best-in-class AI models.

I’d say now is a great time to buy Snowflake stock during a downturn, but you’ll need to be patient because Snowflake the opportunity extends over several years. As a result, you must commit to owning the business for an equally long period of time.

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Keithen Drury has positions in Snowflake. The Motley Fool posts and recommends Snowflake. The Mad Motley has a disclosure policy.

Snowflake CEO buys $5 million in stock. Here’s why it’s a sign to buy the dip was originally published by The Motley Fool

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