Will ServiceNow (NYSE:NOW) beat expectations in its upcoming earnings occasion? No ensures might be made, after all, however I’m bullish on ServiceNow inventory as the corporate’s previous outcomes have demonstrated all-weather fiscal power. In addition to, ServiceNow inventory is buying and selling at a positive 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 is a well-respected firm that helps companies get work completed extra effectively.
But, like so many tech shares, NOW inventory floundered in 2022. That is not essentially an issue, although, as an imminent quarterly report anticipated on January 25 might set ServiceNow inventory again on its upward trajectory.
ServiceNow Suffered Tech-Wreck Collateral Harm
It is actually not ServiceNow’s fault that elevated inflation triggered companies to reduce their software program upgrades. However, NOW inventory traders sustained collateral injury because the share value declined from $566 to less than $430 final 12 months.
As we’ll focus on 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 discount for worth hunters?
In the event you rely completely on conventional valuation multiples and ignore the whole lot else, you may be dissuaded from investing in ServiceNow. I will 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’d somewhat see 5x or much less) are increased than some monetary merchants would need to see.
If these numbers are a deal-breaker for you, that is comprehensible. Simply keep in mind that fashionable know-how corporations can typically defy conventional metrics, and their shares can march relentlessly increased regardless of elevated valuations. So, open-minded traders may 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 Document
So, did you mark your calendar for January 25 but? That is 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 be capable to meet or beat Wall Avenue’s expectations.
This is one thing you’ll be able to’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 anticipate ServiceNow to report EPS of $2.02, and that is the very best anticipated EPS determine in current 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 development 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 is also value noting that ServiceNow’s non-GAAP subscription gross margin has been fairly excessive. The truth is, 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 vital, because it signifies that ServiceNow can flip a large revenue on its merchandise.
Is NOW Inventory a Purchase, Based on Analysts?
Turning to Wall Avenue, NOW inventory is available in as a Sturdy Purchase primarily based on 18 Buys and two Maintain rankings. The typical ServiceNow stock price target is $504.05, implying 14.1% upside potential.

Conclusion: Ought to You Take into account 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 people would possibly scrutinize the corporate’s metrics and select to remain on the sidelines. But, that call might result in remorse and a missed alternative.
Traders ought to think about NOW inventory now earlier than the corporate unleashes what’s more likely to be one other set of expectation-beating earnings outcomes. For a high-growth, high-margin, and high-conviction software program specialist, you seemingly will not discover many higher earnings-blowout candidates than ServiceNow.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
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