Is ServiceNow stock too risky to buy despite delivering solid Q3 results?

on Oct 28, 2021
  • ServiceNow shares fell on Thursday morning after announcing its most recent quarterly results.
  • The company posted its FQ3 revenue and earnings before markets opened, beating analyst estimates.
  • The stock still trades at a steep valuation multiple of 788.56 P/E.

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On Thursday, ServiceNow Inc. (NYSE:NOW) shares plunged after announcing its most recent quarterly results. The company reported its fiscal Q3 revenue and earnings Wednesday after markets closed, beating analyst expectations.

The company posted FQ3 non-GAAP earnings per share of $1.55, beating the average for analyst estimates of $1.39. In addition, its GAAP EPS of $0.31 beat the estimate of $0.22, while revenue for the quarter increased by 32.5% to $1.51 billion, $30 million ahead of estimates.

ServiceNow’s subscription revenue of $1.427 billion exceeded the Street forecast of $1.41 billion.

Is ServiceNow stock overvalued?

From an investment perspective, ServiceNow shares trade at a steep P/E ratio of 788.56, making the stock less attractive to value investors. In addition, analysts forecast its earnings per share to plummet by 81.60% this year before rising at an average annual rate of about 25% over the next five years. 

Therefore, given the company’s expensive valuation and the expected earnings decline, it may be best to monitor the performances before betting on long-term growth.

The stock is up more than 26% this year and 37.33% over the last 12 months, thus outperforming the S&P 500 Index.

Source – TradingView

Technically, ServiceNow shares seem to be trading within an ascending channel formation in the intraday chart. However, the stock has recently pulled back after finding the trendline resistance.

Nonetheless, the stock is yet to retest the trendline support and is still far from reaching oversold conditions. Therefore, investors could target extended pullbacks at about $611.87, or lower at $581.46. 

On the other hand, $667.61 and $693.34 are crucial resistance levels.

Time to short ServiceNow?

In summary, although ServiceNow shares have pulled back recently, the stock is far from reaching oversold conditions, thus leaving room for more downward movement. 

In addition, given the company’s steep valuation and forecast earnings decline, it may be too early to bet on long-term growth.


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