Tech Crash: Switch To Buy In ServiceNow Stock (NYSE: NOW)

Service Today (NYSE: NOW) is one of the low risk stocks in the technology sector. The company has a stable balance, constant growth rates, and high cash flow generation. The company has even provided long -term growth guidance, which further strengthens the case for a bulk premium. I expect that this company of digital workflows will continue to implement and eventually advance to higher levels. I see the stock returning the bulk of its current price over the next decade without the usual risk of unprofitable tech stocks. I rate shares a purchase for the long-term investor.

NOW Stock Price

Like many other tech stocks, NOW has seen material pullback in recent weeks.

The stock has fallen 20% since I warned of appreciation in September.

Now trading at around $ 530 per share, the stock finally looks marketable.

What is ServiceNow

NOW is a digital workflows company. These workflows can be applied to almost anything in the work experience. For example, NOW software helps employees connect customers with answers to all their questions, or with people who know the answers to their questions.

This is beneficial for customers because it saves time and money of having to manually direct or answer each individual question from employees. Like many other enterprise software companies, NOW helps its customers focus on doing things, reducing “work -about -work.”

NOW has provided a low code option for its customers so they can build their own applications using the ServiceNow platform.

NOW has gained customers in all industries and can be considered one of the leaders, if not the leader, in the space.

ServiceNow Financials

While NOW cannot boast the fastest growth in the technology sector, it does offer a model of consistency. In the most recent quarter, NOW has comfortably succeeded in guiding subscription revenues to rise 31%, and subscription charges to rise 28%.

In my view, there are three critical reasons why Wall Street allows NOW to trade in rich multiples, even after a selloff. First, NOW maintains a solid net expansion rate.

Next, NOT only is NOW profitable on a GAAP basis, but the company also generates rich margins on a non -GAAP basis.

The high 26% non-GAAP operating margin has analysts expecting significant GAAP margins in the future.

Finally, NOW provided long -term guidance for both profits and margins. NOW expects to reach more than $ 10 billion in subscription revenues by 2024, and also 33% of free cash flow margins.

NOW has led further for more than $ 15 billion in subscription revenues in 2026, representing a 20+% growth rate following 2024.

Is the Stock NOW a Buy, Sell, or Hold?

Wall Street really thinks NOW is sandbagging long -term guidance. Considering the well-known playbook to be “under promise and over delivery,” that’s a reasonable assumption. The consensus estimates require $ 17 billion of revenues by 2026, well ahead of the $ 15 billion management guide.

While NOW is trading at a blistering 90x profit, operating leverage should enable the bottom line to grow at a rapid rate. Consensus estimates require margins to widen to 31% in a decade.

Because NOW has a highly visible growth runway, high non-GAAP revenue margins, and more than $ 1 billion in net cash on its balance sheet, the company earned a rich multiple considering the relatively average its 25% top-line forward growth rate. NOW is trading at 18x ​​sales, which is hardly a bargain compared to other companies of the same growth cohort in my range. However, I still expect the stock to comfortably beat the market from here. I expect to earn NOW a 40% long-term net margin and trade at approximately 1.5x to 2.0x the price to earnings growth ratio (‘PEG ratio’). That suggests a stock price of $ 2,138 to $ 2,851 in 2030, for an annual return of 17% to 21%. Perhaps we weren’t comfortable using targets 9 years ago. If instead we used the 2026 guideline of $ 15 billion in revenue, NOW could trade approximately $ 1,180 to $ 1,573, representing an annual return of 17.3% to 24%. While there are other tech stocks that may show greater potential return, NOW offers a solid risk-reward proposition due to already having large free cash flow. The main risk in the thesis is if NOW cannot maintain high growth rates, as that will lead to poor performance in both financial numbers and realized multiples. I rate sharing a purchase for those looking for good entry points to safer gaming in the technology sector, although emphasizing that there are many attractive buying opportunities today.

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