Snowflake (SNOW 1.27%) has experienced significant activity since its September 2020 initial pubic offering (IPO). Between the company’s rally in the bull market of 2021 and its lows amid a surprise leadership change earlier this year, investors generally have considered it an expensive stock.
However, one key metric took a hit during its sell-off earlier in the year. Now, investors feel a restored level of confidence and have rallied around the new CEO and the artificial intelligence (AI)-oriented direction of the company. Consequently, its comparatively low valuation by one measure could help boost the stock.
Why Snowflake isn’t so expensive
Investors should question the narrative that Snowflake is expensive due to its price-to-sales ratio (P/S) of 16.
SNOW P/S Ratio data by YCharts.
Admittedly, persuading investors to see 16 times sales as “cheap” is a hard sell, even when talking about the highest-quality stocks. It doesn’t help that ongoing losses leave the company without a P/E ratio or that the stock trades at 19 times its book value.
However, the 16 P/S ratio isn’t far above the record low valuation for Snowflake. Moreover, the stock began its history as a much pricier stock since investors bid its sales multiple to stratospheric levels. In December 2020, the P/S ratio reached a high of 183, meaning the current sales multiple of 16 is more than a 90% discount from the metric’s all-time high.
Additionally, as mentioned before, CEO Sridhar Ramaswamy seems to be winning over investors. After he credited AI with the company’s growth in the fiscal third quarter of 2025 (ended Oct. 31), the stock shot 25% higher following the announcement and has held on to most of those gains.
Furthermore, investors should remember that Snowflake stock sold at close to a 25 P/S ratio before the CEO change in late February. Given the AI-driven growth, investors may want to consider buying the software-as-a-service (SaaS) stock before rising confidence levels take the sales multiple back to levels experienced under the previous management team.
Will Healy has positions in Snowflake. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.
