5
ServiceNow, Inc. (NOW)
- Equity
- US
- Technology
Preparing report
RISK
RETURN
Key risk factors
Strong trading liquidity
Resilient to price shocks
Limited default risk
Key return factors
Strong growth
Strong margins and returns
Greatly overvalued vs peers
Company profileServiceNow, Inc. provides enterprise cloud computing solutions that defines, structures, consolidates, manages, and automates services for enterprises worldwide. It operates the Now platform for workflow automation, artificial intelligence, machine learning, robotic process automation, performance analytics, electronic service catalogs and portals, configuration management systems, data benchmarking, encryption, and collaboration and development tools. The company also provides information technology (IT) service management applications; IT service management product suite for enterprise's employees, customers, and partners; IT business management product suite; IT operations management product that connects a customer's physical and cloud-based IT infrastructure; IT Asset Management to automate IT asset lifecycles; and security operations that connects with internal and third party. In addition, it offers governance, risk, and compliance product to manage risk and resilience; human resources, legal, and workplace service delivery products; safe workplace applications; customer service management product; and field service management applications. Further, it provides App Engine product; IntegrationHub enables application to extend workflows; and professional, industry solutions, and customer support services. It serves government, financial services, healthcare, telecommunications, manufacturing, IT services, technology, oil and gas, education, and consumer products through direct sales team and resale partners. It has a strategic partnership with Celonis to help customers identify and prioritize processes that are suitable for automation. The company was formerly known as Service-now.com and changed its name to ServiceNow, Inc. in May 2012. The company was founded in 2004 and is headquartered in Santa Clara, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
80.70
119.80
PEG
3.00
-
P/B
19.20
16.50
P/S
16.40
14.30
P/FCF
49.30
40.00
EV/EBITDA
98.90
111.50
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Mixed
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 9ppts over past six months and grown 1ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable
The average target price is 763 and suggests 1% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 883.7. This translates into 17% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 651.1. This is equivalent to 14% downside potential in the worst case.
Profitability: Strong
RoE
ServiceNow, Inc. reported a return on equity (RoE) of 24.5% in the last 12 months, down from 27.3% in FY23. The market consensus projects an RoE of 14.7% in FY24, however, this time below its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 11.0% in the last 12 months, a decrease from 11.3% in FY23. The market analysts predict that RoA will be 6.5% in FY24, though below its peers in this period.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 18.8%, above the peers. The consensus estimate for FY24 for RoCE is 5.5%, however, this time below its peers.
Net margin
EBITDA margin
Historically, NOW has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 20.3%, a growth from 19.3% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 16.6% in the last 12 months, up from 15.7% in FY23.
RoIC / WACC = 1.1(average value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.1 in the past several years. This ratio implies a average shareholder value creation. Growth: Strong
Revenue
EBITDA
EPS
Free cash flow
NOW reported revenue of USD 9 478mn in the last 12 months, up 6% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 11% from FY23 to USD 9.43. Market expects EPS to reach USD 6.11901 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of EPS. On the positive side, FCF dynamics is very stable.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Limited
The risk of default is minimal. We note solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to poor working capital management.
Volatility: Modest
In normal market circumstances, NOW is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to average. We would also like to highlight the average intraday volatility of the instrument.
Stress-test: Resilient
In highly turbulent market conditions, NOW is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.
Selling difficulty: Very low
NOW boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.