If you’re eyeing ServiceNow and wondering whether it deserves a spot in your portfolio, you’re not alone. It’s always a little nerve-wracking deciding what to do with a stock that’s made headlines for both dizzying gains and recent pullbacks. Over the past three years, ServiceNow has delivered impressive growth, with shares up a substantial 143.5%. Long-term holders have certainly enjoyed the ride. However, if you zoom in to the past year, returns have flattened out at -1.9%. Even in 2024 so far, the stock is down 14.2%, suggesting a shift in how investors are pricing in its growth versus its risks.

This shift did not happen out of nowhere. The broader software sector has seen some volatility, partly tied to changing expectations around interest rates and tech sector momentum. ServiceNow’s robust long-term performance is still top of mind for many, but recent market developments have brought the stock’s valuation into renewed focus. Are investors missing something, or is the stock simply catching its breath after years of outperformance?

Based on a composite of six standard valuation checks, ServiceNow scores just a 1, indicating it is only perceived as undervalued by one metric out of the six. That is a lot for value-conscious investors to consider, yet raw numbers rarely tell the full story. Let’s dig into the specific valuation approaches analysts use to assess ServiceNow, and see why these yardsticks only reveal part of the bigger picture. At the end, I’ll share an even more practical way to evaluate what ServiceNow is really worth right now.

ServiceNow scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown .

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to today's dollars. It captures the long-term earning power of a business, taking into account both near-term analyst forecasts and long-range growth estimates.

For ServiceNow, the most recent reported Free Cash Flow stands at $3.76 billion. Looking ahead, analysts foresee steady growth, projecting Free Cash Flow to reach $9.04 billion by 2029. These five-year estimates are further extrapolated by independent analysts for the full ten-year horizon, suggesting the company could see continued expansion in its ability to generate cash.

After running these cash flow scenarios through the DCF model, the estimated fair value per share comes out to $889.79. Compared to the stock's current market price, this valuation indicates the shares are about 1.6% overvalued. This is a remarkably small gap for a growth-focused company in the software sector, suggesting the market is pricing the stock almost exactly in line with what its cash flows justify.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for ServiceNow.

Simply Wall St performs a valuation analysis on every stock in the world every day ( check out ServiceNow's valuation analysis ). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

The Price-to-Earnings (P/E) ratio is widely used to value profitable companies like ServiceNow, as it puts the company’s stock price in context with its earnings power. This metric helps investors judge how much they’re paying for each dollar of net income, which is especially important when comparing companies at different stages of growth and profitability.

The so-called “right” P/E ratio for a stock isn’t one-size-fits-all. Higher growth prospects and lower risk generally justify a higher P/E multiple, while slower growth or higher risk warrant a lower one. For ServiceNow, the current P/E sits at 113x, meaning investors are paying a significant premium relative to current earnings. This is well above the industry average of 36x and the peer average of 62x, reflecting strong confidence in ServiceNow’s future growth and market position.

Simply Wall St’s Fair Ratio concept takes a more tailored approach than a basic peer or industry comparison. Their Fair Ratio, calculated at 50x for ServiceNow, factors in earnings growth, profit margins, risk profile, industry trends, and the company’s size. This makes it a more meaningful benchmark for today’s market conditions and ServiceNow’s specific outlook, helping investors look past overly simplistic side-by-side multiples.

Comparing the current P/E (113x) to the Fair Ratio (50x) shows that ServiceNow is being valued at more than double its growth- and risk-adjusted “fair” multiple. This suggests the market has high expectations baked in, and, based on this metric, the stock appears overvalued.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth .

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your view of ServiceNow’s story, your perspective on its future, reflected in forecasts for revenue, earnings, and margins. This approach helps you calculate your own fair value for the stock.

Narratives go beyond the numbers and link a company’s business story to a financial forecast and then to a fair value, effectively connecting what you believe about ServiceNow’s future with what you see in market pricing. They are easy and accessible to use, built directly into the Simply Wall St Community page, and used by millions of investors to compare their thinking with others.

By building your own Narrative or reviewing those shared by the community, you can easily see if the current share price offers an opportunity or signals caution by comparing each Fair Value to today's Price. Narratives keep up with the market too. When the news changes or a new earnings report lands, updated data automatically refreshes your forecasts and valuations.

For example, one investor sees ServiceNow worth $1,243 by factoring in aggressive AI-driven growth, while another sees it at $904 based on more conservative revenue and profit assumptions. Narratives let you decide which story best aligns with your beliefs, or even craft your own.

Do you think there's more to the story for ServiceNow? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include NOW .

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

If you’re eyeing ServiceNow and wondering whether it deserves a spot in your portfolio, you’re not alone. It’s always a little nerve-wracking deciding what to do with a stock that’s made headlines for both dizzying gains and recent pullbacks. Over the past three years, ServiceNow has delivered impressive growth, with shares up a substantial 143.5%. Long-term holders have certainly enjoyed the ride. However, if you zoom in to the past year, returns have flattened out at -1.9%. Even in 2024 so far, the stock is down 14.2%, suggesting a shift in how investors are pricing in its growth versus its risks.

This shift did not happen out of nowhere. The broader software sector has seen some volatility, partly tied to changing expectations around interest rates and tech sector momentum. ServiceNow’s robust long-term performance is still top of mind for many, but recent market developments have brought the stock’s valuation into renewed focus. Are investors missing something, or is the stock simply catching its breath after years of outperformance?

Based on a composite of six standard valuation checks, ServiceNow scores just a 1, indicating it is only perceived as undervalued by one metric out of the six. That is a lot for value-conscious investors to consider, yet raw numbers rarely tell the full story. Let’s dig into the specific valuation approaches analysts use to assess ServiceNow, and see why these yardsticks only reveal part of the bigger picture. At the end, I’ll share an even more practical way to evaluate what ServiceNow is really worth right now.

ServiceNow scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown .

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to today's dollars. It captures the long-term earning power of a business, taking into account both near-term analyst forecasts and long-range growth estimates.

For ServiceNow, the most recent reported Free Cash Flow stands at $3.76 billion. Looking ahead, analysts foresee steady growth, projecting Free Cash Flow to reach $9.04 billion by 2029. These five-year estimates are further extrapolated by independent analysts for the full ten-year horizon, suggesting the company could see continued expansion in its ability to generate cash.

After running these cash flow scenarios through the DCF model, the estimated fair value per share comes out to $889.79. Compared to the stock's current market price, this valuation indicates the shares are about 1.6% overvalued. This is a remarkably small gap for a growth-focused company in the software sector, suggesting the market is pricing the stock almost exactly in line with what its cash flows justify.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for ServiceNow.

Simply Wall St performs a valuation analysis on every stock in the world every day ( check out ServiceNow's valuation analysis ). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

The Price-to-Earnings (P/E) ratio is widely used to value profitable companies like ServiceNow, as it puts the company’s stock price in context with its earnings power. This metric helps investors judge how much they’re paying for each dollar of net income, which is especially important when comparing companies at different stages of growth and profitability.

The so-called “right” P/E ratio for a stock isn’t one-size-fits-all. Higher growth prospects and lower risk generally justify a higher P/E multiple, while slower growth or higher risk warrant a lower one. For ServiceNow, the current P/E sits at 113x, meaning investors are paying a significant premium relative to current earnings. This is well above the industry average of 36x and the peer average of 62x, reflecting strong confidence in ServiceNow’s future growth and market position.

Simply Wall St’s Fair Ratio concept takes a more tailored approach than a basic peer or industry comparison. Their Fair Ratio, calculated at 50x for ServiceNow, factors in earnings growth, profit margins, risk profile, industry trends, and the company’s size. This makes it a more meaningful benchmark for today’s market conditions and ServiceNow’s specific outlook, helping investors look past overly simplistic side-by-side multiples.

Comparing the current P/E (113x) to the Fair Ratio (50x) shows that ServiceNow is being valued at more than double its growth- and risk-adjusted “fair” multiple. This suggests the market has high expectations baked in, and, based on this metric, the stock appears overvalued.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth .

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your view of ServiceNow’s story, your perspective on its future, reflected in forecasts for revenue, earnings, and margins. This approach helps you calculate your own fair value for the stock.

Narratives go beyond the numbers and link a company’s business story to a financial forecast and then to a fair value, effectively connecting what you believe about ServiceNow’s future with what you see in market pricing. They are easy and accessible to use, built directly into the Simply Wall St Community page, and used by millions of investors to compare their thinking with others.

By building your own Narrative or reviewing those shared by the community, you can easily see if the current share price offers an opportunity or signals caution by comparing each Fair Value to today's Price. Narratives keep up with the market too. When the news changes or a new earnings report lands, updated data automatically refreshes your forecasts and valuations.

For example, one investor sees ServiceNow worth $1,243 by factoring in aggressive AI-driven growth, while another sees it at $904 based on more conservative revenue and profit assumptions. Narratives let you decide which story best aligns with your beliefs, or even craft your own.

Do you think there's more to the story for ServiceNow? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include NOW .

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for ServiceNow.

Simply Wall St performs a valuation analysis on every stock in the world every day ( check out ServiceNow's valuation analysis ). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

The Price-to-Earnings (P/E) ratio is widely used to value profitable companies like ServiceNow, as it puts the company’s stock price in context with its earnings power. This metric helps investors judge how much they’re paying for each dollar of net income, which is especially important when comparing companies at different stages of growth and profitability.

The so-called “right” P/E ratio for a stock isn’t one-size-fits-all. Higher growth prospects and lower risk generally justify a higher P/E multiple, while slower growth or higher risk warrant a lower one. For ServiceNow, the current P/E sits at 113x, meaning investors are paying a significant premium relative to current earnings. This is well above the industry average of 36x and the peer average of 62x, reflecting strong confidence in ServiceNow’s future growth and market position.

Simply Wall St’s Fair Ratio concept takes a more tailored approach than a basic peer or industry comparison. Their Fair Ratio, calculated at 50x for ServiceNow, factors in earnings growth, profit margins, risk profile, industry trends, and the company’s size. This makes it a more meaningful benchmark for today’s market conditions and ServiceNow’s specific outlook, helping investors look past overly simplistic side-by-side multiples.

Comparing the current P/E (113x) to the Fair Ratio (50x) shows that ServiceNow is being valued at more than double its growth- and risk-adjusted “fair” multiple. This suggests the market has high expectations baked in, and, based on this metric, the stock appears overvalued.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth .

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your view of ServiceNow’s story, your perspective on its future, reflected in forecasts for revenue, earnings, and margins. This approach helps you calculate your own fair value for the stock.

Narratives go beyond the numbers and link a company’s business story to a financial forecast and then to a fair value, effectively connecting what you believe about ServiceNow’s future with what you see in market pricing. They are easy and accessible to use, built directly into the Simply Wall St Community page, and used by millions of investors to compare their thinking with others.

By building your own Narrative or reviewing those shared by the community, you can easily see if the current share price offers an opportunity or signals caution by comparing each Fair Value to today's Price. Narratives keep up with the market too. When the news changes or a new earnings report lands, updated data automatically refreshes your forecasts and valuations.

For example, one investor sees ServiceNow worth $1,243 by factoring in aggressive AI-driven growth, while another sees it at $904 based on more conservative revenue and profit assumptions. Narratives let you decide which story best aligns with your beliefs, or even craft your own.

Do you think there's more to the story for ServiceNow? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include NOW .

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com