ServiceNow Looks Like a Great Software Stock

Stock (Symbol)

ServiceNow (NOW)

Stock Price

$96

Sector

Technology

Data is as of

May 4, 2017

Expected to Report

Jul 25

Company Description

ServiceNow, Inc. is provider of enterprise cloud computing solutions that define, structure, manage and automate services for global enterprises. The Company offers a set of cloud-based services that automate workflow within and between departments in an enterprise. It provides workflow solutions, and focuses on service management for customer support, human resources, security operations and other enterprise departments. Source: Thomson Financial

Sharek’s Take

Let’s take a first look at one of the hottest stocks in the market today — ServiceNow (NOW). ServiceNow is a cloud-based provider of software to businesses, and does so on a subscription basis. When it began in 2004, the company started with IT help-desk software and has expanded into customer service and is developing a slew of other apps to sell to customers, such as human resources. The company is a competitor to Salesforce. ServiceNow blew away profit estimates last qtr. It made a profit of $0.24 vs. $0.09 a year ago, and beat the street by 7 cents. So analysts expected 89% growth and NOW delivered 167%. Triple-digit growth always gets the eyes of investors, as many top stocks of all time possessed this trait (as well as beating the street). The company only beat by a penny and two cents the prior 2qtrs so this earnings release caused the stock to jump higher on strong volume — and continue higher. NOW currently sells for $107, up from $96 just a month ago when these charts and tables were developed. I like the stock a lot, but the P/E is high and the stock is extended after a huge run so I’ll keep it on the radar for now.

One Year Chart

Nice looking one-year chart outside of the P/E. But Salesforce has a high P/E too — and isn’t growing nearly as fast. I love the qtrly profit growth history along the bottom, and Estimates look good with 33%, 52%, 58% and 38% growth expected the next 4 qtrs. Note this chart was done a month ago when NOW was $96 and its $107 today. The stock’s been trending higher almost every day — it must be getting accumulated by institutions. Great Est. LTG of 40% per year.

Fair Value

Since NOW was losing money when it first came public, I give that a pass in my analysis. Once companies do start to turn a profit though I want growth to continue each year — which ServiceNow has done. I pegged a fair P/E at 75 earnings, which is $87 a share, and that explains why I didn’t purchase the stock last month.

Bottom Line

ServiceNow has the makings of the next great software stock. Profits and sales are growing strong, and there’s a nice history of rapid growth. I’m concerned some NASDAQ stocks have run too-far too-fast and may be headed for a breather or a correction. Also, the stock market hasn’t suffered a correction since before the election and software stocks often get hit hard when the market declines. NOW is on my radar, and I’m looking to buy on a dip.