By ServiceNow stock price has remained in a tight range in the past few weeks as investors focus on its revenue growth. This performance may change this week as the company publishes its third-quarter financial results, which will provide more color on its performance. It was trading at $946, up by over 13% from its lowest level this month.
ServiceNow earnings preview
ServiceNow is one of the biggest software companies in the world, with a market capitalization of over $193 billion.
The company provides tools that help other firms and organizations automate workflows, manage enterprise operations, and integrate AI across most business operations. It competes with firms like Microsoft, Atlassian, and SAP.
ServiceNow stock price will be in the spotlight this week as it publishes its third-quarter financial results, which will provide more color on its operations.
The most recent results showed that its revenue growth continued in the second quarter. Its subscription revenue grew by 22% to over $3.13 billion, helped by its infusion of artificial intelligence in its business. Total revenue jumped to $3.21 billion during the quarter.
More results showed that the company’s current RPO (cRPO) jumped to $10.92 billion, while its remaining performance obligations (RPO) jumped by 29% to $23 billion. This is exceptional growth that was much higher than other top software companies like Adobe and Microsoft.
Still, the company warned that its current quarter’s revenue growth will have some headwinds because of customer renewals and government cuts. It expects that its revenue will be between $3.26 billion and $3.265 billion, representing an annual growth of between 20% and 20.5%.
For the year, the company expects to make between $12.77 billion and $12.79 billion. Historically, ServiceNow has always done better than expected as the management tends to be highly conservative.
Valuation concerns remain
The main concern among analysts is that ServiceNow’s business is highly overvalued because of its $193 billion valuation.
ServiceNow has a forward PE ratio of 106, higher than the sector median of 31. This multiple is much lower than the five-year average of 289.
The company’s forward PE ratio on a non-GAAP basis is 55, also lower than the sector median of 25. It is higher than that of other technology companies, including the AI powerhouse Nvidia.
The PEG ratio, which looks at a company’s price and earnings and compares it with its growth is 2.69, much higher than other companies. These numbers mean that the company is highly overvalued based on these historical averages.
Another way to find out whether the company is a bargain or highly expensive is known as the rule-of-40 multiple, which looks at a company’s growth and margins. Its forward revenue growth is 21% while its profit margin and FCF margin are 13% and 32%.
Adding the revenue growth and its profit margin brings the rule-of-40 multiple of 34%, making it a bit overvalued. When using the FCF margin, the rule-of-40 multiple is over 50%.
ServiceNow stock price technical analysis
The daily timeframe chart shows that the NOW stock price has remained in a tight range in the past few days and is now hovering at the 50-day and 100-day Exponential Moving Averages.
It has also formed a symmetrical triangle pattern, while the Relative Strength Index (RSI) and the MACD have pointed upwards.
Therefore, the stock will likely have a bullish breakout, potentially to the key resistance level at $1,000. A move above that level will point to more gains, potentially to $1,050.
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