Servicenow Break Out to an All-Time High

Stock (Symbol)

ServiceNow (NOW)

Stock Price

$123

Sector

Technology

Data is as of

December 3, 2017

Expected to Report

Jan 23

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

Software stock ServiceNow (NOW) broke out to a new All-Time high of $135 last week. And with profits set to grow 50% on average the next 4 qtrs, the stock could be headed even higher. NOW is one of the fastest growing software stocks to own, and reminds me a lot of Salesforce.com. 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 then expanded into customer service, and is now developing a slew of other apps in HR and security. ServiceNow had a renewal rate of 97% last qtr with 400 customers doing more than $1 million in average contract values. The company is a competitor to Salesforce, but NOW is growing faster with profits up 70% or so the last 2 years, double Salesforce’s. These charts and tables are as of December 3, when the stock was $123. The one-year chart shows a stock that’s gone from $80 to $123 in a year. Last qtr I wrote “NOW is in the middle of my 2017 and 2018 Fair Values of $88 and $134. I feel the stock is traveling towards $134″. Now at $135 I feel the shares are high, and need to cool down some. But with that Est. LTG of 52% a year and qtrly profits expected to climb 50% on average the next 4 qtrs I can’t imagine much of a selloff. In fact, I feel if I continue to sit on my hands I just might watch the stock go to $200. And with the shares breaking out last week, the stock could be headed that way now. Servicenow will be added to the Growth Portfolio.

One Year Chart

Service now delivered 39% sales growth last qtr as profits surged 65% and beat estimates of 39% profit growth. Billings rose 35%. This stock was on a roll when it was $123 last month, and is now $135. Profit Estimates of 46% , 42%, 73% and 37%. will likely keep this stock timely for the next year, so it’s an important one to own. And the P/E of 68 isn’t bad considering the growth (note the P/E is 75 today with the stock higher than shown here).

Fair Value

A lot of young companies that turn profitable have high P/Es. It’s often conservative investors that skip on great stocks like this because “the P/E’s too high”. Well we need to step back and see where the stock could be in a couple years to help us pull the trigger and buy. Notice my 2019 Fair Value is $205 a share.

Bottom Line

ServiceNow is one of the world’s top software companies, with rapidly growing profits. But the stock has a high valuation. But the P/E os 75 isn’t too high as the stock has a ton of upside to my 2018 Fair Value of $205. I would love to have this stock come down a bit for me to buy in, but the economy and the stock market are both trending higher and I feel there’s a risk of this stock leaving me behind. NOW will be added to the Growth Portfolio, and will rank 23rd in the Power Rankings.