Will ServiceNow (NYSE:NOW) beat expectations in its upcoming earnings occasion? No ensures could be made, after all, however I’m bullish on ServiceNow inventory as the corporate’s previous outcomes have demonstrated all-weather fiscal energy. In addition to, ServiceNow inventory is buying and selling at a good value level – although some traders would possibly observe some seemingly inflated valuation metrics.
Headquartered in California, ServiceNow supplies cloud-based, synthetic intelligence (AI) powered workflow automation software program. To place it merely, it’s a well-respected firm that helps companies get work performed extra effectively.
But, like so many tech shares, NOW inventory floundered in 2022. That’s not essentially an issue, although, as an imminent quarterly report anticipated on January 25 may set ServiceNow inventory again on its upward trajectory.
ServiceNow Suffered Tech-Wreck Collateral Injury
It’s actually not ServiceNow’s fault that elevated inflation brought on companies to reduce their software program upgrades. However, NOW inventory traders sustained collateral injury because the share value declined from $566 to lower than $430 final yr.
As we’ll talk about momentarily, ServiceNow continued to ship excellent bottom-line outcomes all through 2022 regardless of macroeconomic headwinds. First issues first, although: did the share-price drawdown create an irresistible cut price for worth hunters?
When you rely completely on conventional valuation multiples and ignore every thing else, you could be dissuaded from investing in ServiceNow. I’ll be the primary to confess that ServiceNow’s 432.9x P/E ratio, 20x P/B ratio (I typically choose 3x or much less), and 12.9x P/S ratio (I might somewhat see 5x or much less) are greater than some monetary merchants would wish to see.
If these numbers are a deal-breaker for you, that’s comprehensible. Simply keep in mind that fashionable expertise firms can typically defy conventional metrics, and their shares can march relentlessly greater regardless of elevated valuations. So, open-minded traders could be prepared to miss or forgive ServiceNow’s excessive multiples, particularly after delving into the corporate’s spectacular earnings historical past.
ServiceNow Has a Stellar Earnings Observe File
So, did you mark your calendar for January 25 but? That’s when ServiceNow plans to launch its fourth-quarter earnings knowledge. Analysts have excessive hopes, and primarily based on the corporate’s superb observe report, ServiceNow ought to have the ability to meet or beat Wall Avenue’s expectations.
Right here’s one thing you may’t say about each exchange-listed firm: imagine it or not, ServiceNow has managed to exceed analysts’ consensus EPS estimate in each quarter since early 2018. Plus, ServiceNow’s EPS has grown considerably over the previous a number of years.
For This autumn 2022, analysts count on ServiceNow to report EPS of $2.02, and that’s the very best anticipated EPS determine in latest reminiscence for this firm. But, ServiceNow must be as much as the duty. Throughout Q3 2022, the corporate grew its subscription income by 22% year-over-year whereas additionally rising its big-ticket prospects (those paying over $10 million in annual contract worth) by an eye-popping 60%.
In different phrases, ServiceNow maintained a robust progress trajectory even when the economic system was shaky and NOW inventory was in decline. This divergence between share value and operational outcomes would possibly persuade traders to purchase ServiceNow inventory even when the corporate’s valuation multiples are elevated.
It’s additionally value noting that ServiceNow’s non-GAAP subscription gross margin has been fairly excessive. Actually, that margin has stayed at 85% or 86% since Q3 2021. Furthermore, the corporate’s non-GAAP complete gross margin was 81% to 83% throughout that point. That is important, because it signifies that ServiceNow can flip a large revenue on its merchandise.
Is NOW Inventory a Purchase, In response to Analysts?
Turning to Wall Avenue, NOW inventory is available in as a Robust Purchase primarily based on 18 Buys and two Maintain rankings. The common ServiceNow inventory value goal is $504.05, implying 14.1% upside potential.
Conclusion: Ought to You Think about ServiceNow Inventory?
Clearly, Wall Avenue has excessive expectations for ServiceNow. There are many Purchase rankings, and analysts envision one other spectacular EPS print from ServiceNow. Admittedly, some of us would possibly scrutinize the corporate’s metrics and select to remain on the sidelines. But, that call may result in remorse and a missed alternative.
Buyers ought to think about NOW inventory now earlier than the corporate unleashes what’s prone to be one other set of expectation-beating earnings outcomes. For a high-growth, high-margin, and high-conviction software program specialist, you doubtless received’t discover many higher earnings-blowout candidates than ServiceNow.
