ServiceNow Inc. (NYSE: NOW), a leading provider of cloud-based software solutions, has recently made headlines with a notable 15% surge in its stock price following a strong earnings report.
This impressive gain brings its year-to-date performance to nearly 20%, and the stock has just broken out of a lengthy consolidation, indicating potential momentum and trend shift on a higher timeframe. So, with NOW bucking the market and its sector's short-term trend, is now the time to buy it? Let's take a closer look at the stock and its recent report.
What is ServiceNow?
ServiceNow is a prominent enterprise software company specializing in digital workflows and automation. Its core offering, a platform-as-a-service (PaaS), allows businesses to create custom applications and workflows to streamline and enhance their operations. The company's solutions are designed to digitize and automate business processes, improving efficiency and productivity.
The company has a $173 billion market capitalization and is a member of the S&P 500 index. Notably, the stock is also on the Top-Rated Stocks list, as analysts hold the company in high regard. Based on 27 analyst ratings, the stock has a Moderate Buy rating and, following its most recent earnings report, has received a flurry of praise and positive analyst actions. For example, following its report, analysts at JPMorgan boosted its target from $780 to $820. Similarly, analysts at Stifel Nicolaus, among many other analysts, boosted its target considerably from $820 to $900.
ServiceNow's Strong Financial Performance in Recent Quarter
The company's recent earnings report exceeded expectations, showcasing its strong financial performance and growth.
For the quarter that ended June 30, the company reported adjusted earnings per share (EPS) of $3.16, up 33% from the previous year and beating the consensus estimate of $2.83. Revenue also grew 22% year over year to $2.627 billion, surpassing the forecasted $2.607 billion.
Notably, subscription revenue rose 23% to $2.54 billion, slightly above expectations. The company's current remaining performance obligations (CRPO), a critical sales growth metric, increased by 22% to $8.78 billion, exceeding the $8.68 billion forecast. CRPO reflects deferred revenue and order backlog, providing insight into future sales growth.
Looking ahead, ServiceNow has updated its full-year guidance, projecting subscription revenue between $10.575 billion and $10.585 billion, slightly above its prior outlook. The third-quarter forecast anticipates subscription revenue of $2.660 billion to $2.665 billion, closely aligning with analysts' expectations.
Analyzing ServiceNow's Growth Potential and Value Proposition
ServiceNow's stock recently broke above a significant resistance level at $800, a barrier it had struggled with throughout the year. This breakout, coupled with the stock trading at 52-week highs, indicates strong upward momentum.
However, potential investors should note the company's high current P/E ratio of 153, suggesting a premium valuation. The forward P/E ratio of 52.48 may offer a more balanced view of its growth potential and value proposition, especially if the stock pulls back, which would see that premium shrink and deliver a better entry for the long term.
The company's strong earnings performance and bullish technical indicators make it an attractive prospect for investors. However, the stock's high valuation may warrant discipline and patience for new buyers or, at the very least, additional and thorough due diligence into its growth prospects. As the company continues to grow and expand its market position, it remains a crucial player in the enterprise software space, especially with its growing focus on AI-driven products and solutions.
