On September 16th, Snowflake (SNOW) went public. Management had initially planned an IPO price between $75 to $85, but in the end, it priced it at $120 per share. On the first day of trading, the price gained 113% and became the biggest software IPO of all time. Investors were enamored by the company’s growth story and potential. SNOW’s revenue grew…
174% for the fiscal year that ended on January 31st.
While SNOW is a great story, its current valuation, based on a price to sales ratio of 120.7, is way too high. The company will need to deliver insane growth to justify its current valuation. I believe there are other more established companies with better growth prospects trading at more reasonable prices. When I say “better growth,” I am referring to a higher potential for growth over the long term, not its current growth rate.
I believe NVIDIA (NVDA), Netflix (NFLX), and Newmont Goldcorp (NEM) offer more significant growth potential than SNOW. I chose these three stocks because they exhibit top growth potential in their industries and sectors based on earnings, operating income, dividends, and revenue. They also have low debt, strong profitability, and valuations on the lower side based on a forward price to earnings (P/E).
NVIDIA (NVDA)
NVDA is the indisputable leader in the graphics processing units (GPUs) market. In fact, it had a commanding 80% market share in the second quarter. The chips are a favorite among gamers due to their ultra-realistic images that make you feel like you’re in the game. Aside from gaming, the company has also expanded its GPU usage to facilitate complex calculations, cloud computing, and artificial intelligence. That’s why I chose this stock. It has immense growth potential with these new end markets.
In the second quarter, revenue grew an astonishing 50% year over year. This was driven by a 167% increase in revenue from its data center, which includes cloud computing and artificial intelligence. NVDA recently introduced its new processor, the RTX 30, described as a game-changer. This new generation of graphics cards destroys the previous generation in terms of performance and price. As more people are building and upgrading computers due to the pandemic, NVDA is in a prime position to benefit. When the company launched its new RTX 3080 graphics card on September 17th, it sold out in seconds.
NVDA also recently reported that it would acquire mobile chip designer ARM Holdings. The combination of NVDA’s AI computing platform and ARM’s CPU ecosystem could make NVDA a dominant powerhouse in the artificial intelligence space.
NVDA is rated a “Buy” in our POWR Ratings system. It has a grade of “B” in every POWR component, including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is also the #6 ranked stock in the Semiconductor & Wireless Chip industry. This stock has enormous upside due to its explosive growth prospects.
Netflix (NFLX)
NFLX is the dominant force in the streaming space. Its streaming platform has the best catalog of series and films. This was the case before the pandemic, and it continues to be the case. The platform has become…
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