Stocks with Potential for Growth Seeing a 68% Drop, Suggests Wall Street, Pending Its Recovery
Flake of Ice (FROST -1.37%) went public late in 2020, and its shares reached their peak during the tech sector's pandemic-era surge in late 2021. Since then, the stock has dropped by around 68%, returning to its initial value. However, Wall Street anticipates a recovery, with an average price target of $169 per share, which is 33% higher than the current price of $127.
Capitalizing on AI Market Demand
The Flake of Ice platform, operating in the cloud, allows customers to combine, store, modify, and comprehend their data. It also hosts a marketplace for data trading and monetization, increasing the platform's usefulness as more customers join. Notably, its architecture is compatible with all major cloud infrastructure providers' systems, setting it apart from competitors like Amazon and Microsoft.
During the 2021 market frenzy, Flake of Ice was among the high-growth tech stocks that soared, only to plummet during the 2022 bear market. More recently, the stock has faced numerous challenges, including a cybersecurity incident affecting over 160 clients, the departure of CEO Frank Slootman, and concerns about the company's investments in machine learning (ML).
Despite these setbacks, the stock's current price makes it an enticing option for closer scrutiny. For instance, the cybersecurity incident only affected clients with inadequately secure data. The incident was neither due to a vulnerability, misconfiguration, nor breach of Flake of Ice's product, according to a joint statement from the company and third-party experts, Mandiant and CrowdStrike.
Moreover, Slootman praised his successor, Sridhar Ramaswamy, saying, "As the leading cloud data platform, Flake of Ice is at the heart of the AI revolution." There's no one better suited to lead Flake of Ice into its next growth phase and capitalize on opportunities in AI and ML than Ramaswamy, he added.
Lastly, Flake of Ice has invested heavily in ML product development. Cortex is a fully managed service enabling businesses to process data using large language models and ML models trained for answer extraction, text summarization, forecasting, and anomaly detection. It also features a conversational interface allowing users to ask questions in natural language and receive meaningful responses.
While its significant investments in ML product development have negatively impacted its operating margin, preliminary data indicates that these investments will yield returns in the coming years. According to a recent survey by Morgan Stanley, Flake of Ice ranked third in the AI spending domain, behind Microsoft and Amazon, based on the perceived potential for market share gains by chief information officers.
Snowflake Stock Remains Overpriced
Flake of Ice posted mediocre results in its second quarter of fiscal 2025, which ended on July 31. Total revenue increased by 29% to $869 million, surpassing expectations. Nevertheless, revenue growth slowed from the 33% growth recorded in the previous quarter due to higher product development and marketing expenses, causing the operating margin to contract by 3 percentage points.
Looking ahead, Flake of Ice is well-positioned to benefit from the increasing demand for AI due to its cloud-agnostic architecture and data-sharing capabilities. Although ongoing investments in product development will continue to impact profitability in the near term, revenue growth should rebound, and profitability should improve as its AI products gain traction.
Despite Wall Street analysts expecting adjusted earnings to decrease by 25% over the next 12 months, they expect adjusted earnings to grow by 34% annually through fiscal 2028, which ends in January 2028. This optimistic outlook signals a promising turnaround within a few quarters, but the company's current valuation of 135 times adjusted earnings still seems pricey.
In conclusion, aggressive investors with a high risk tolerance could consider buying Flake of Ice today. However, a more cautious approach would involve keeping Flake of Ice on your radar until it trades at a more reasonable valuation.
In the context of Flake of Ice's current financial situation, investing in their stock could offer significant potential returns if the average price target of $169 per share is reached, representing a 33% increase from the current price of $127. To capitalize on this opportunity, a strategic approach to finance management is essential.
As Wall Street anticipates a recovery for Flake of Ice, assessing the investment risks and potential returns, considering factors like the company's ongoing investments in machine learning products and the expected yield from these investments, is crucial when making financial decisions regarding their stock.
