The TFSA (Tax-Free Savings Account) is a popular registered account that offers investors a lot of flexibility. Moreover, its tax-sheltered status makes it ideal for holding inflation-beating asset classes such as stocks, exchange-traded funds, and mutual funds.
Introduced in 2009, the TFSA can be used as a wealth-creating machine, making it ideal for holding quality growth stocks positioned to beat the market. The TFSA contribution room in 2024 is $7,000, and here’s how you can invest it right now.
Should you invest in equities or GICs
The asset class you should own depends on factors such as your age, risk appetite, and investment horizon. For example, older investors should have a higher exposure to lower-risk financial products such as Guaranteed Investment Certificates (GICs).
The GIC is an instrument where you deposit a certain sum for a fixed period with a bank or a financial institution in return for regular interest payments. In recent years, interest rate hikes have meant the interest rate on GICs is around 5%, which is higher than the current inflation rate. Moreover, GICs are ideal for those with a short-term investment horizon.
Alternatively, younger Canadians with a higher risk appetite can hold quality growth stocks in the TFSA to benefit from multifold returns over time. Here is one such tech stock you can own right now.
Is Snowflake stock a good buy?
Valued at US$43 billion by market cap, Snowflake (NYSE:SNOW) is a software-as-service (SaaS) company that is growing at an enviable pace. Snowflake provides enterprises with a cloud-based data warehousing platform and has experienced explosive growth as its sales more than doubled in fiscal 2021 and fiscal 2022 (ended in January). Its top-line growth has decelerated in recent years as the company expects product sales to grow by “just” 24% in fiscal 2025.
Similar to other asset-light tech companies, Snowflake has a high gross margin of 75%. Alternatively, it expects an operating margin of 3% in fiscal 2025, lower than its initial forecast of 6%.
Snowflake’s RPO, or remaining performance obligations, had grown by 46% to US$5 billion at the end of the first quarter (Q1), providing investors with top-line visibility. It is also seeing renewed client interest in bigger deals, as it signed a US$100 million deal in Q1 and a US$250 million deal in fiscal Q4 of 2024.
The company reported a net retention rate of 128% in Q1, which means existing customers have increased spending on the Snowflake platform by 28% in the last 12 months.
While Snowflake remains unprofitable on a GAAP (generally accepted accounting principles) basis, it reported an adjusted free cash flow margin of 44% in fiscal Q1. With US$4.5 billion in cash, Snowflake is well-funded and has the financial flexibility to invest heavily in organic growth and accretive acquisitions.
What is the target price for SNOW stock?
Snowflake’s decelerating sales growth has dragged the stock lower by 68% from all-time highs. Despite the pullback, Snowflake stock trades at a price-to-sales multiple of 12.3 times, which is quite expensive. Analysts tracking Snowflake stock remain bullish and expect it to surge 50% in the next 12 months to US$193.
