Core Viewpoint - ServiceNow's stock has experienced a significant decline, dropping over 35% from its peak earlier this year, and is now in a bear market, with expectations for upcoming financial results [1][4]. Company Overview - ServiceNow is a leading technology company in the U.S., specializing in a cloud-based platform for IT Service Management (ITSM), focusing on automating workflows for IT services, customer services, and low-code development [2]. - The company serves thousands of clients globally, including major firms like Accenture, Adidas, Amazon, Walmart, Apple, and Vodafone Group [3]. Financial Performance - ServiceNow's annual revenue has increased from $4.5 billion in 2020 to over $10.98 billion projected for 2024, indicating strong business growth [3]. - Analysts anticipate a revenue increase of 18.5% to $3.09 billion for the upcoming financial results, with an expected earnings-per-share (EPS) of $3.83, up from a previous estimate of $3.41 [4][5]. Valuation Metrics - Concerns regarding ServiceNow's valuation persist, with a current price-to-earnings (P/E) ratio of 112.8, down from a high of 179 last year, and a forward P/E ratio of 95.7, significantly above the sector median of 23.2 [6]. - Compared to other SaaS companies, ServiceNow's valuation appears high, with Adobe, Microsoft, and Salesforce having forward P/E multiples of 21, 28, and 22, respectively [7]. Growth and Profitability - ServiceNow's revenue growth rate is approximately 21%, with a net profit margin of 16%, resulting in a rule-of-40 metric of 38%, suggesting the stock may be slightly overvalued [8]. - However, when considering its free cash flow (FCF) margin of 37%, the overall valuation may not be excessively high [8]. Stock Price Analysis - The stock price has fallen from a high of $1,196 in January to around $722, forming a double-top pattern that indicates a potential downturn [10]. - A death cross has formed, indicating bearish sentiment, and the stock is expected to continue declining post-earnings, with an initial target of $680 [11].
Is ServiceNow stock a buy or a sell ahead of earnings?