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ServiceNow (NYSE:) provides enterprise cloud computing solutions to define, build, integrate, manage and automate services for global enterprises.

I am bullish on NOW stock. (See the top stocks of analysts on TipRanks)

Defining technology for the 21st century

ServiceNow stated that it aspires to become a “defining 21st century enterprise software company.”

It claims that 6,900 customers include 80% of the Fortune 500, so it is making progress towards this goal. It also has 1,200 customers, each with an average annual revenue of 3.5 million U.S. dollars.

Long-term shareholders are certainly believers.

In the past 10 years, through an investment of US$10,000, the return on the stock has exceeded US$257,000, which is more than 2,480%. This made it one of the most successful companies of that period. That’s right-in the past ten years, its return on investment has been higher than that of high-flying Apple (NASDAQ:), Microsoft (NASDAQ:), Alphabet (NASDAQ:) ) And Amazon (NASDAQ:).

It achieves this goal by expanding its customer base, extending service offerings to existing customers, providing incredible services, investing in growth, and expanding revenue to profitability.

Expand profitability

Revenue has increased by more than 2,000%, and gross profit has increased by 2,430% in the past 10 years along with the stock price. As the customer base grows, NOW also has a 97% renewal rate.

This indicator is the key to efficient and outstanding stocks in the SaaS field. SaaS companies tend to spend most of their revenue on sales and marketing expenses (S&M). As long as they win customers at an effective rate, this investment is prudent.

Due to the extremely high renewal rate, S&M fees will not be used to replace existing customers when they are lost (customer churn). Instead, investments in S&M are used for growth. This shows that a company can still provide great value even at current prices.

In addition, the company is still very committed to acquiring new customers. The S&M department is by far the department with the largest number of employees. The company’s quarterly subscription revenue continues to grow by more than 30% year-on-year. The company also directs a total growth of 29% for fiscal 2021.

Given the company’s current size, this growth is no small feat. The company expects subscription revenues of $5.5 billion in 2021. Analysts are more optimistic, predicting it will be 5.8 billion U.S. dollars in 2021 and 7.31 billion U.S. dollars in 2022.

The appeal of ServiceNow at current prices is obvious. The company continues to grow at an alarming rate and is now profitable and generates huge free cash flow. Management invests in customer retention and the growth of subscription companies, and the Fortune 500 relies heavily on ServiceNow’s workflow system.

Wall Street view

Wall Street analysts are very optimistic about NOW stock, with a strong buy consensus rating based on 20 buys, two holds, and no sell ratings.

The average NOW price target of US$678.48 implies an upside potential of 7.8%.

ServiceNow summary

Historically, ServiceNow has been a great investment for shareholders.

Despite this situation, the stock can still provide investors with a lot of future.

Even now, the company’s forward sales are only 18.9 times, which is consistent with the historical average. On some traditional scales, this seems high until someone thinks that the company’s compound annual growth rate is still more than 30% and it has successfully achieved profitability.

The short interest rate is less than 2% of the float, which means there is little bearish sentiment. ServiceNow is ready to beat the wider market in the next few years.

Disclosure: At the time of publication, Bradley Guichard held positions in the securities mentioned in this article.

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