Service Now (NOW) is one of the most watched stocks by Zacks.com visitors recently. Therefore, it may be a good idea to review some of the factors that may affect the near-term performance of a stock.

Shares of the maker of software that automates companies’ technology operations have returned -5.8% over the past month, compared with the Zacks S&P 500 Composite’s +3.4% change. The Zacks Computers – IT Services industry, to which ServiceNow belongs, lost 1.4% during the period. Now the important question is: Where can the stock go in the near term?

While media releases or rumors about a significant change in a company’s business prospects usually make its stock ‘trending’ and lead to immediate price changes, there are always some underlying facts that ultimately lead to buying and Hold dominates decision-making.

Revision of Revenue Estimates

Rather than focusing on anything else, we at Zacks prefer to examine the change in a company’s earnings estimates. This is because we believe the fair value of its stock is determined by the present value of its future earnings.

We primarily look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates for a company go up, the fair value of its stock goes up. A fair value higher than the current market price makes investors interested in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between earnings estimate revisions and trends in near-term stock price movements.

For the current quarter, ServiceNow is expected to post earnings of $2.85 per share, marking a change of +20.3% from the year-ago quarter. The Zacks Consensus Estimate was unchanged over the past 30 days.

For the current fiscal year, the consensus revenue estimate is $13.51 points which is a change of +25.3% from last year. Over the past 30 days, this estimate has remained unchanged.

For the next fiscal year, the consensus revenue estimate of $16.23 points to a change of +20.1% compared to what ServiceNow is expecting to report a year ago. Over the past month, estimates have remained unchanged.

With a strong externally audited track record, our proprietary stock rating tool, ZacksRank, provides a more definitive picture of near-term stock price direction, as it effectively harnesses the power of revisions to earnings estimates. does. Due to the size of the recent change in consensus estimates, along with three other factors related to earnings estimates, ServiceNow is assigned a Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s forward 12-month consensus EPS estimates:

12 months EPS

12-month consensus EPS estimate for NOW _12MonthEPSChartUrl12-month consensus EPS estimate for NOW _12MonthEPSChartUrl

12-month consensus EPS estimate for NOW _12MonthEPSChartUrl

Increase in expected income

Although revenue growth is the highest indicator of a company’s financial health, nothing happens if a business is unable to grow its revenue. After all, it is almost impossible for a company to grow its revenue over a long period of time without growing its revenue. Therefore, it is important to know the potential revenue growth of the company.

In ServiceNow’s case, the consensus sales estimate of $2.61 billion for the current quarter indicates a year-over-year change of +21.2%. Estimates of $10.88 billion and $13.11 billion for the current and next fiscal years indicate changes of +21.3% and +20.4%, respectively.

Last reported results and surprise history

ServiceNow reported revenue of $2.6 billion in the last reported quarter, representing a year-over-year change of +24.2%. EPS of $3.41 for the same period compares to $2.37 a year ago.

The reported revenue represented a +0.62% surprise, compared to the Zacks Consensus Estimate of $2.59 billion. EPS surprise was +8.25%.

The company beat consensus EPS estimates in each of the last four quarters. The company has topped consensus earnings estimates every time in the period.

Value

Without considering stock valuation, no investment decision can be made effectively. In predicting a stock’s future price performance, it is critical to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

By comparing a company’s current values ​​such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), historical values ​​help determine whether the Whether the stock is undervalued, overvalued, or undervalued, comparing the company with its peers on these parameters gives a good idea of ​​the reasonableness of the stock price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which measures both traditional and unconventional valuations) organizes stocks into five groups from A to F (Better than AB; BC is better; etc.), this is helpful in identifying whether a stock is overvalued, correctly valued, or temporarily undervalued.

ServiceNow is rated F on this front, indicating that it is trading at a premium to its peers. Click here to see the values ​​of some of the valuation metrics that have driven this grade.

The bottom line

The facts discussed here and many other information on Zacks.com can help determine whether the market buzz about ServiceNow is worth paying attention to. However, its Zacks Rank #3 suggests it may outperform the broader market in the near term.

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