Snowflake’s price to sales ratio just hit 245 (using TTM sales of $490 million).
With a current market cap of $120 billion, this begs the question: has there ever been a company in history as large as Snowflake with a higher valuation?
I don’t believe so.
Back in the dot-com mania, Cisco briefly hit a price to sales ratio of 39x with a market cap over $550 billion. This was considered extreme at the time.
Other big tech names peaked in 2000 at the following Price to Sales Ratios…
-Microsoft: 31x
-Qualcomm: 30x
-Oracle: 27x
-Intel: 17x
-Applied Materials: 16x
Was Cisco able to “grow into” its 39x sales valuation as many investors believed it would back in 2000?
Not exactly.
20 years later, Cisco has yet to surpass its 2000 peak.
Including dividends, Cisco investors who bought at the peak in 2000 are still down 27% with a maximum drawdown of close to 90%.
Cisco as a company has actually done very well over the past 20 years, tripling their revenues. Few companies of its size have done better.
But a company is not nearly the same as its stock. Its actual revenue growth rate was not enough to overcome the high starting valuation as investors in the future were not nearly as optimistic as they were in the past (current price to sales ratio is 3.9x).
Will Snowflake investors suffer a similar fate? Can it possibly “grow into” a 245x sales valuation?
Stock market investors seem to be betting that they can, projecting current growth rates far into the future. But as we saw with Cisco, the market isn’t always right, particularly at extremes.
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