Top 5 Stocks That Kayak Investment Partners is Buying

1. Snowflake Inc. (NYSE:SNOW)

Topping our list of Kayak Investment Partners’ most bullish stock buys of Q3 is Snowflake Inc (NYSE:SNOW). The fund now owns 146,842 Snowflake Inc (NYSE:SNOW) shares as of the end of September, adding 37% more shares to its holding in Q3 to build a stake valued at $44.41 million. A new high of 73 hedge funds was long SNOW at the end of Q3, up from just 54 at the end of 2020.

Snowflake Inc (NYSE:SNOW)’s capital expenditure-light model was praised by RiverPark Funds in Snowflake Inc (NYSE:SNOW)’s Q3 2021 investor letter, with the fund projecting that SNOW will grow FCF much faster than revenue and could comfortably grow by more than 50% for several years. The fund also projected Snowflake’s market to grow into a $100 billion one by this year and the majority of physical databases continue to migrate to the cloud.

Luca Capital, an investment management firm, published its third-quarter 2021 investor letter and mentioned Snowflake Inc (NYSE:SNOW). Here‘s what the fund said:

“You may notice that the majority of our filters are qualitative. While we do believe that any company can be overvalued, the market has historically valued companies with durable competitive advantages below their intrinsic value because it expects the ROIC to trend towards average over time. However, the best businesses can often earn returns far and above their cost of capital for much longer than can be reasonably expected. Therefore, these businesses tend to trade at multiples that would be considered expensive by traditional metrics. However, the market can realize this opportunity and apply a much higher valuation on these companies, hence discounting their future returns to a more average return.

One example of this is Snowflake (SNOW), which recently debuted at an EV/S of over 175x. Although future returns might still be attractive, a significant amount of upside has already been captured. If we assume P/S drops 83% over the next 10 years to 30x with modest share dilution of 3.5%, in order to achieve a 15% annual return, Snowflake would have to grow sales at a ~41% CAGR to a $13B run rate. Snowflake is an exceptional company in a massive market so it might prove to be undervalued even at today’s prices, but its future returns have been greatly muted. Coca Cola is another example of a company with a wide durable moat but was so overvalued in the late 90’s it provided poor returns over the subsequent decade.”

You can also take a peek at the Top 10 High Growth Stocks To Buy in 2021 and 15 Biggest Companies That Use Shopify.

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