SNOW is too expensive to buy; trades at ~4.5 PEG and 186x earnings.

Snowflake and Broadcom have just released their earnings , and we will be comparing some of these figures with various opportunities in the hardware and software sectors.

Then of course there was this crazy explosion in the " Snowflake" stock. Snowflake's stock jumped 20% in approximately 10 seconds after the earnings announcement.

It felt like: Wait a minute. This cannot be based on the fundamentals. It looks like a scramble to cover short selling positions .

Okay, we have the basics like: "Hey , Snowflake product revenues increased by 3.76%." Actually, not by that much, but their adjusted earnings per share outperformed by 37% in the second quarter. This is a big deal.

It is on the more expensive side. It trades like a tech- rich stock with recurring annual revenues . So, Snowflake is here. Snowflake is interesting. Snowflake has stable pricing power at the revenue level, but in reality, it increases its pricing power at its operating expenses.

While total revenues and expenses increase by about 35%, its administrative and general costs and operating expenses increase by only 16%. In other words, for every dollar of additional money growth, they see spending grow by only 50 cents .

This difference is very tempting. It expands somewhat on the growth side only. So, this is great. This is an increase in pricing power.

However, if we look at the rest of the company in terms of cash flow yield, this company has a cash flow yield of less than 1%. We are talking about perhaps 0.9% compared to this company, which is worth $120 or $130 billion after the surge we have seen.

Therefore, their cash flows are somewhat nominal. It's not like they're borrowing. They have repurchased shares in the past six months. So, that will be in the last quarter. They did not repurchase any shares in the last quarter here.

Regarding their balance sheet , let's extract it. It will appear immediately. I have $2.3 billion in cash plus another $718 million in accounts receivable. I have plenty of money to pay off the $1.1 billion in bills I have.

I have about $3 billion here. You can pay off almost all of your long-term debt. Not the most wonderful thing. They do not have unlimited funds to buy other companies or make other deals.

It's not as if they're sitting on a fortress against criticism. But, well, you know, they don't really have debt; what they do have is a company that's expanding from an operating loss to a profit.

And I think what's happening here is that they're going through a short-selling phase because I think people are looking and saying, you know, I think it's very simple. Hello, I'm pessimistic about software companies.

Who will I be short selling ? Let me find some software companies that are trading at infinite price-to-earnings ratios. oh well . I will simply use the subsequent earnings multiple.

Ah, oh, how wonderful. I will only look for all the losing companies and I will sell them short. This company entered the earnings announcement period with high short selling interest rates.

It takes about four days to cover the interest on the short selling that is based on it. Approximately four days . 3.89 days. That's too much. The company is actually expected to become profitable.

But let's conduct an assessment of Snowflake here. So, if I evaluate Snoflake, I get an earnings forecast of $1.96. What are they traded for? Approximately 365 divided by 1.96 .

This thing is trading at a price-to-earnings ratio of 186 times, even with earnings forecasts, i.e., reaching positive earnings. With projected growth of 41% over the next four years on average annually, this amounts to a price-to-earnings-to-growth ( PEG) ratio of approximately 4.5.

This is expensive. As I said, they are traded like cybersecurity companies.

I don't own anything in Snowflake. And it's going up a lot . But I didn't want to buy Snowflake because, to me, it's too expensive and it doesn't have the cybersecurity endpoint management feature that cybersecurity companies have .

So, I don't know if you can justify that valuation for that company. I mean, it's great, it's going up a lot, but it was too expensive for me and I have questions about those features fading away.

Whereas Salesforce or, sorry, Snowflake is trading at around 4.5x or whatever, which is crazy.

UI Path announces a partnership with Snowflake.

As you know, "Snowflake" experienced a brief, slight pressure. I really don't like that company .