Within my Stocks and Shares ISA I hold a number of Warren Buffett-owned stocks. Apple, Coca Cola, and Mastercard are some examples.
However, there’s one Buffett stock I’ve bought that excites me more than the others. Crunching the numbers, I reckon this one can double in the next few years.
My Buffett-owned super stock
The stock I’m talking about is Snowflake (NYSE: SNOW). It’s a technology company that offers cloud-based data storage and analytics services via a Software-as-a-Service (SaaS) model.
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Founded in 2012, it has a distinguished list of customers today (London Stock Exchange Group, NatWest, Virgin Media, and the NHS are some examples) with more than 400 customers paying over $1m a year in fees.
A play on data and AI
What I like about Snowflake is that it’s benefitting from several powerful themes right now including:
- Cloud adoption – all over the world, businesses are turning to the cloud to store their data. This is creating high demand for the company’s solutions
- Data-driven decision making – organisations are increasingly using their data to gain insights and make more informed decisions. This trend is fueling the demand for data analytics solutions like Snowflake.
- Artificial intelligence (AI) – such applications require large amounts of data. Snowflake’s platform is optimised for running AI workloads, making it attractive to organisations using the technology
Overall, the company has a lot going for it. Ultimately, it looks very well positioned in today’s data-driven world.
How the price could jump
Snowflake has grown its revenues at a phenomenal rate in recent years. Over the last three financial years, its top line has climbed from $265m to $2.1bn (annualised growth of 98%).
Now I don’t expect growth to continue at this rate. For the year ended 31 January (FY24), analysts expect revenue of $2.8bn (+35%).
But let’s say the company can grow its top line by 35% a year for the next five years. In this scenario, we could be looking at sales of around $11bn by mid-FY2028.
Apply a price-to-sales multiple of 15 here (the multiple is close to 30 today, so I’ve left a lot of room for multiple contraction) and we’re looking at a market-cap of around $165bn. That’s more than twice today’s market-cap.
If the price-to-sales ratio was to remain at near 30, we could be looking at returns of 300%, or more.
Now obviously I’ve made a lot of forecasts and assumptions here. Going forward, Snowflake could experience much slower growth. Despite the widening adoption of cloud and data analytics, this kind of business is economically sensitive.
The price-to-sales multiple could also contract a lot more. In 4.5 years’ time, the stock could have a ratio of 10, or five.
Overall though, I’m very bullish on this Buffett-owned stock. Given its growth, I think it might not be too long before it doubles in price. I hope I’m right.
