On December 3, Snowflake, Inc. (SNOW) reported sturdy adjusted free money circulate and FCF margins for its fiscal Q3 ended Oct. 31. Furthermore, administration maintained its 25% FCF margin steerage for the total FY.
That might result in a 22% increased value goal for SNOW inventory at $276.49 per share. This text will present how that works out and a few methods to play SNOW inventory.
SNOW inventory – final 3 months – Barchart – As of Dec. 8, 2025
SNOW is buying and selling at $226.82 noon on Monday, Dec. 8, effectively off its latest excessive of $265.00 simply earlier than its earnings outcomes on Dec. 3.
That was even after Snowflake, which calls itself the AI Knowledge Cloud firm, reported 29% YoY progress, and its adjusted free money circulate (FCF) rose 57%.
The market wished to see extra. For instance, during the last 12 months its adj. FCF margin was simply 19.0%. That’s effectively under the 25% adj. FCF margin steerage that administration maintained.
This may be seen on web page 33 of Snowflake’s investor presentation deck:
Snowflake, Inc. adj. FCF margins – Q3 – web page 33 of deck and Hake evaluation
It exhibits that the trailing 12-month adj. FCF of $833.5 million was 19% of the $4,387 million trailing 12-month income (see additionally information supplied by reported by Inventory Evaluation).
Though that is decrease than administration’s steerage of 25% for the total yr, take a look at how excessive the This autumn margins have sometimes been. Final yr, it was 43% of gross sales.
This means that, given most of its purchasers renew their subscriptions throughout the upcoming quarter, it’d be capable of meet this 25% steerage.
Let’s examine if that’s the case.
Based mostly on analysts’ This autumn income forecasts, we will challenge its full-year adj. FCF margin. For instance, Looking for Alpha stories that 42 analysts have a mean This autumn gross sales forecast of $1.26 billion.
So, assuming it makes the same 42% adj. FCF margin, the total yr adj. FCF shall be:
$1,260m x 0.42 = $529.2 million (i.e., +25% over final yr’s $423.087m)
$529.2m +$833.5m – $423.087m = $939.66 m adj. FCF for FY 2026
And, based mostly on analysts’ income forecasts of $4.65 billion:
That’s effectively under administration’s 25% full-year adj. FCF margin steerage. That may very well be why SNOW inventory is faltering.
Nevertheless, it doesn’t take an excessive amount of increased FCF to get to the 25% steerage:
$4650m x 0.25 = $1,162 full-year adj. FCF
That means that This autumn adj. FCF shall be $751.5 million (i.e., $1,162m – $410.5m YTD adj. FCF). That represents a 59.6% adj. FCF margin on the estimated $1.26 billion in This autumn gross sales.
Furthermore, analysts’ This autumn income forecasts may very well be too low.
My finest guess is that income shall be 30% increased and its adj. FCF margin for This autumn shall be 50%. That brings the whole to $1.052 billion in adj. FCF for FY 2026, or a 22.6% margin. It is nonetheless decrease than administration’s steerage, however it appears doable.
Furthermore, utilizing this estimate for subsequent yr might result in the next value goal (PT) for SNOW inventory.
Utilizing a 1.0% FCF yield metric, the market worth of SNOW inventory may very well be over $105 billion:
$1.052b adj. FCF / 0.01 = $105.2 billion mkt cap
That’s over 37% increased than its market valuation at the moment of $76.69 billion, in line with Yahoo! Finance:
$105.2b / $76.69b = 1.3717 -1 = +37.2% upside
Nevertheless, simply to be conservative, let’s use a barely decrease FCF worth of 1.125%. That is the equal of an 88.89x a number of:
$1.052b x 88.89 = $93.5 billion mkt worth
That’s +21.9% increased than at the moment’s market cap (i.e., $93.5b/$76.69b). In different phrases, the PT is 21.9% increased:
$226.82 x 1.219 = $276.49 PT
Analysts are likely to agree. For instance, Yahoo! Finance stories that the common of 51 analysts is $281.73 per share. Barchart’s imply survey PT is analogous: $278.20.
The underside line is that SNOW inventory appears too low cost right here.
One technique to play that is to promote brief out-of-the-money (OTM) places to set a decrease buy-in. That approach, an investor can receives a commission whereas ready to take a position at this OTM value.
The Jan. 9, 2026, expiry chain exhibits that the $215.00 put choice contract, which is 4.6% decrease than at the moment’s buying and selling value, i.e., out-of-the-money (OTM), has a sexy value for short-sellers.
For instance, the midpoint premium is $5.15 per put contract. That enables an investor who secures $21,500 per put contract shorted to make an instantaneous earnings of $515.
It is a yield of 2.395% (i.e., $5.15/$215.00) for one month. That could be a very engaging return, particularly if it may be repeated for a number of months.
SNOW places expiring Jan. 9, 2026 – Barchart – As of Dec. 8, 2025
This additionally permits the investor to doubtlessly have a decrease breakeven buy-in level:
$215 – $5.15 earnings acquired = $209.85
That’s 7.5% decrease than at the moment’s value. Furthermore, if SNOW rises to my PT of $276.49 over the following yr, the potential upside is +31.75% (i.e., $276.49/$209.85-1).
The underside line is that it is a nice technique to set a decrease buy-in level.
In my final article on SNOW, I additionally really useful shopping for in-the-money (ITM) calls at $220.00 for expiry on Might 15, 2025. The premium is decrease at the moment than earlier than, however the funding continues to be a sound play.
On the date of publication, Mark R. Hake, CFA didn’t have (both instantly or not directly) positions in any of the securities talked about on this article. All data and information on this article is solely for informational functions. This text was initially printed on Barchart.com
