Wall Street Analysts Think ServiceNow (NOW) Could Climb 33%: Read This Before Placing Bets – November 1, 2022

Service Today (NOW Free Report) closed the last trading session at $420.74, having gained 7.4% over the past four weeks, but there may be plenty of upside left in the stock if the short-term price targets set by Wall Street analysts are any guide. A mean price target of $561.08 indicates a 33.4% upside potential.

The average estimate consists of 25 short-term price targets with a standard deviation of $83.24. While the lowest estimate of $460 indicates a 9.3% upside from the current price level, the most optimistic analyst expects the stock to rise 85.4% to reach $780. It is very important to note the standard deviation here, as it helps to understand the variance of the estimates. The smaller the standard deviation, the greater the agreement among analysts.

While the consensus price target is highly sought after by investors, the ability and impartiality of analysts in setting price targets has long been questioned. And investors who make investment decisions based solely on this tool may be doing themselves a disservice.

But, for NOW, an impressive average price target is not the only indicator of a potential upside. The strong agreement among analysts about the company’s ability to report better earnings than they had previously predicted reinforces this view. While a positive trend in earnings estimate changes does not measure how much a stock will gain, it has proven powerful in predicting upside.

Price, Consensus and EPS Surprise

Zacks Price, Consensus and EPS Surprise Chart in NOW

Here’s What You Should Know About Analyst Price Targets

According to researchers at several universities around the world, the price target is one of the many pieces of information about a stock that more often misleads investors than it guides. In fact, empirical research shows that target prices set by some analysts, regardless of the extent of agreement, rarely indicate where a stock’s price may actually be headed.

Although Wall Street analysts have a deep understanding of a company’s fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to set excessive targets. price. Are you wondering why?

They usually do that to gain interest in parts of companies with which their companies may have existing business relationships or are looking to be associated. In other words, the business incentives of companies covering a stock often result in inflated price targets set by analysts.

However, a tight clustering of price targets, represented by a low standard deviation, indicates that analysts have a high degree of agreement about the direction and size of a stock’s price movement. While that doesn’t mean the stock will hit the average price target, it can be a good starting point for further research aimed at identifying potential key driving forces.

That said, while investors shouldn’t completely ignore price targets, making an investment decision based solely on them can lead to disappointing ROI. Thus, price targets should always be treated with a high degree of skepticism.

Here’s Why There May Be Plenty Left Over NOW

Analysts’ growing optimism over the company’s earnings prospects, as indicated by strong agreement among them to revise EPS estimates higher, could be a legitimate reason to expect the stock to rise. That’s because empirical research shows a strong correlation between trends in earnings estimate changes and near-term stock price movements.

For the current year, six estimates rose higher in the past 30 days while three were lower. As a result, the Zacks Consensus Estimate rose 1.7%.

Additionally, NOW currently has a Zacks Rank #2 (Buy), which means it is in the top 20% of the more than 4,000 stocks we rank based on four factors related to earnings estimates. Given an impressive externally audited track record, this is a more certain indication of the stock’s potential upside in the near term. You can find here the complete list of Zacks Rank #1 (Strong Buy) stocks today >>>>

Therefore, while the consensus price target may not be a reliable indicator of how much NOW can get, the direction of price movement it indicates appears to be a good guide.

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