Why ServiceNow (NOW) is on investors’ radar today

ServiceNow (NOW) has attracted attention after a period of weak share performance, with the stock showing negative returns over the past month, past 3 months and year to date.

At a last close of US$90.17, the company sits on a market cap of about US$93b, prompting investors to reassess how its current valuation lines up with its software workflow platform, financial profile and recent return history.

While the 1 day share price return of 6.4% has been positive, the 90 day share price return of 33.9% and 1 year total shareholder return of 52.3% decline suggest momentum has been fading despite the current valuation reset.

If you are comparing ServiceNow with other software names benefiting from AI workflows and infrastructure, this could be a useful moment to scan 38 AI infrastructure stocks

So with ServiceNow’s shares sitting well below analyst targets and recent returns under pressure, should you view this reset as a valuation gap to exploit, or is the market already pricing in all the future growth you care about?

Most Popular Narrative: 17.1% Undervalued

According to the most followed narrative on ServiceNow, the fair value of $108.81 sits above the last close of $90.17, pointing to a meaningful discount that hinges on strong growth and margin assumptions.

📈ServiceNow has stellar operating margins and solid revenue and EPS growth. Also, the fact that it is able to return (ROIC) above its estimated cost of capital is nice to see.

Want to see why this narrative still lands above $100 per share? It leans on robust revenue expansion, firm profitability and a rich valuation multiple baked into the model.

Result: Fair Value of $108.81 (UNDERVALUED)

However, this hinges on margin strength holding up and AI not materially reshaping demand for ServiceNow’s SaaS workflows in ways that the current models do not capture.

Another angle on valuation

There is a catch. While the user narrative points to a fair value of $108.81 and calls ServiceNow slightly undervalued, the current P/E of 52.9x is far above the US Software industry average of 30.5x, the peer average of 47.7x and a fair ratio of 40.6x. This raises the question of how much optimism is already in the price.

Next Steps

If this mix of optimism and caution feels familiar, it may be a good time to review the numbers and form your own view, starting with 3 key rewards.

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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.