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Should I Invest In Snowflake?

Sep. 17, 2020 4:13 PM ETSnowflake Inc. (SNOW)
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Yesterday, Snowflake (SNOW), one of the most anticipated IPOs in recent history, hit markets. With names like Berkshire Hathaway and Salesforce getting in on the IPO, should you be looking at SNOW as your next big investment?

Snowflake Inc. is a cloud-based data-warehousing startup that was founded in 2012, and yesterday they hit public markets. So what exactly does that mean?

What Is An Initial Public Offering (IPO)?

Well, an IPO, or Initial Public Offering, is a way for a company to raise capital in exchange for small pieces of their company called stock shares… and let’s just say that the SNOW IPO was a big one!

In fact, their IPO set a record for software companies and has been the biggest in the U.S. this year.

Originally their IPO price was supposed to be between $75-$85, but last week both Berkshire Hathaway and Salesforce committed to buying millions of shares.

Because of this, the price was then set to release between $100-$110. But this afternoon, around noon when they finally started trading, it opened up at $249.99.

Within a matter of minutes it shot up as high as $318.01. That was over a 27% move within 3 minutes… crazy! That is what we call FOMO (Fear Of Missing Out) in the trading world. And that’s what tends to happen with IPOs.By the end of yesterday’s trading, Snowflake (SNOW) closed up on the day 3.64%.

Snowflake SNOW 5 Minute Chart

How Did The Top IPOs Of 2019 Do?

Last year we had a few noteworthy IPOs like UBER, LYFT, CHWY and PINS. So let’s take a look how all of these different stocks performed out of the gate.

First, we’ll look at UBER. Much like Snowflake (SNOW), UBER had an explosive first day of trading. Then for about two months it basically moved sideways, until its first earnings report. From there, things got pretty ugly! In a matter of months the stock went from $43 to as low as $25.58.

UBER IPO daily chart

Now let’s take a look at their competitor, LYFT. Very much like SNOW and UBER, it too had a very volatile first day of trading but nearly immediately started moving lower. LYFT IPO’d at $87.24 in March of 2019, and by October it found a temporary bottom at $37.07.

LYFT IPO daily chart

Starting to notice a pattern yet?

Well, let’s take a look at another IPO that was really hyped last year, Chewy (CHWY). Its first day of trading was also very volatile. It opened up at $36 on its first day of trading in June of last year. By November it finally found a temporary bottom, trading as low as $21.68.

CHWY IPO daily chart

A few other great examples from last year would be Pinterest and Slack. Both acted nearly identically to the other IPOs we just discussed.

Slack was hyped up as the “Skype Killer,” and although that may turn out to be true, their stock basically went straight lower from the start.

WORK IPO daily chart

From what I’ve seen over the last few years, this has sort of been the MO of these ultra hyped IPOs.Taking a look at iposcoop, you can see all the recent IPOs, and as I’m sure you’ll see, there are plenty you’ve probably never heard of before.

Will I Be Investing or Trading Snowflake?

So after all that discussion, should you invest in Snowflake (SNOW)? Well, ultimately that is up to you. I’m a short term trader, so I like to hold things for as little as a day or two and typically no longer than a few weeks. So for me, I will not be investing in (or trading) Snowflake.

If you’ve followed me for any length time you’ve probably heard me say:

Trade What You SEE, Not What You Think.And for me, I don’t SEE a trade setup. Could SNOW break the mold for over-hyped IPOs and go higher with out a sharp move lower…of course! But that’s not how I approach the markets.I stick with SRC Profits:– Systematic– Repeatable– Consistent

If you invested in SNOW, I would love to hear about it in the comments.I hope this was helpful!

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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