Snowflake, Inc. (SNOW) is one of the few companies that forecasts its own free cash flow (FCF) margins (i.e. FCF as a percentage of revenue). So if analysts’ revenue projections for the next 12 months hold true, SNOW stock looks very cheap here.
THE SNOW IS ON $246.24 in midday trading on Monday, October 13. However, it could have a lot more to go up – even $364 per share, my new price target, over the next 12 months (NTM).
SNOW Stock – Last 3 Months – Bar Chart – October 13, 2025
I discussed Snowflake’s recent earnings and its FCF margins in an August 31 Barchart article: “Snowflake is on a roll: Its huge free cash flow could boost SNOW even further.”
This was after the company released its fiscal second-quarter results on August 27 for the quarter ending July 31.
I noted that management now forecasts that its adjusted FCF margins for fiscal 2026 (ending January 2026) will be 25% of income. That’s on the first page of your results post in the guidance section.
This is so unique, and because revenue, earnings, and cash flow are very predictable for this cloud management and data analytics software company.
Based on that, I predicted that the FCF would be at least $1.1263 million for fiscal year 2026 (i.e. 0.25 x $4.4 billion projected by the company). Using a 1.0% FCF return metric, I estimated its target market cap to be $112.63 billion.
That was +41.4% higher than its market cap of $79.63 billion at the time (i.e. $238.66 per share). So, I set a target price of $337.47 per share (i.e. +41.4% more).
Now, based on analysts’ higher revenue forecasts, I have adjusted my price target upward to more than $364 per action..
Analysts have since raised their revenue forecasts for the next fiscal year. For example, they now predict revenue will rise to $5.71 billion, up from $5.69 billion in my August article on Barchar.
Additionally, it makes sense to use a revenue forecast for the next 12 months (NTM). This is 25% of analysts’ fiscal 2026 revenue forecast of $4.61 billion (note that this is higher than management’s estimate of $4.4 billion). This is because we are now in the fourth quarter. I also use 75% of the fiscal year 2027 forecast:
= 25% x $4.61 billion (FY26) +75% x $5.71 billion (FY27)
Assuming the company continues to earn a 25% adjusted FCF margin, we can estimate its adjusted FCF:
0.25 x 5,345 million dollars = $1.35875 billion MNA FCF
This would be more than 44.3% more than last year ($941.5 million).
This can lead to a higher share price.
In my last article, I estimated that the market would give the stock an FCF yield valuation of at least 1.0%. That means that if the company paid out 100% of its FCF as a dividend, the market would give SNOW stock a dividend yield of 1.0%.
The reason I did this was that its trailing 12-month FCF (TTM) represented approximately 1.0% of its market cap at the time. But, to be more conservative, given that its adj. The FCF is higher than the TTM figure, let’s use a 10% higher figure, i.e. an FCF performance metric of 1.10%.
That reduces the FCF multiple from 100 (i.e. 1/0.01 = 100x) to 80x (i.e. 1/0.011 = 90.9x). So, here’s how this works for estimating the market value of SNOW stock:
$1,358,750 million non-tariff FCF x 90.90 = $123.51 billion NTM Market Value
This is +47.9% more than the current market cap of $83.5 billion, according to Yahoo! Finance. In other words, SNOW stock could be worth more than $364 per share:
Price of $246.24 per share today x 1.479 = $364.19 target price
This is higher than many other analysts. For example, 34 analysts surveyed by AnaChart have an average of $272.33 per share. However, many of these analysts have been playing catch-up with their forecasts for Snowflake for a while.
One way to play this is to buy in-the-money (ITM) calls on older dated calls. They can be funded in part by shorting out-of-the-money (OTM) puts on nearby puts.
For example, the put option contract for November 21, 39 days from now, shows that the put option contract with strike price of $220 has a midpoint premium of $6.43.
This is more than 10% below the current price (i.e. out of the money or OTM) and provides an immediate return of 2.92% (i.e. $6.43/$220.00 = 0.02922).
SNOW puts due on November 21 – Bar chart – As of October 13, 2025
The point is that this performance income can be used to partially finance the purchase of a longer-term in-the-money (ITM) call option. That way, an investor can benefit from any advantage of SNOW stock on a leveraged basis and with less cash outlay to benefit from the advantages of owning 100 shares of SNOW.
For example, the call option expiration period of May 15, 2026 shows that the $220.00 call option (i.e., in-the-money) has a premium of $52.80 by call contract. That period is 214 days from now, or 5.5 periods of 39 days.
SNOW Calls Expire May 15, 2026 – Bar Chart – As of October 13, 2025
So, this means that if the investor can repeat the short sale play for 5 periods of 39 days and earn $6.43 each time, the cumulative total would be $32.15. That would cover much of the purchase price of the May 15, 2026 call:
$52.80-$32.15 = $20.65
In other words, the net purchase price would be $240.65 (i.e. $220+$20.65), or 1.85% below the current price of $245.18.
Additionally, instead of spending $24,518 to buy 100 shares, an investor can spend just $5,280 on the May 15, 2026 ITM calls to control 100 shares.
Additionally, if SNOW hits the $364.19 price target, the $220 calls will be worth 173% more:
$364.19 – $220.00 = $144.19
$144.19 / $52.80 = 2.73-1 = +173% the other way around
This is a much more leveraged return than the 47.9% target of increasing outright ownership of SNOW shares. Furthermore, the short put option will improve this performance as it reduces the total cost.
The bottom line is that shorting OTM and buying long ITM calls is a good way to play SNOW stock.
On the date of publication, Mark R. Hake, CFA had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
