Is it too late to buy ServiceNow stock?

In the crowded field of enterprise software companies, Service Now (NOW 3.24%) continues to stand out as a leader in workflow automation. ServiceNow’s ability to drive efficiency is critical for organizations in a time of economic uncertainty and rising labor costs.

Will these improvements continue to translate into gains for investors? As the stock price rises, long-term investors should take a closer look at this SaaS stock to see if it still offers opportunities.

ServiceNow status

ServiceNow is a popular choice for companies looking to improve workflow automation. Its software, called the Now platform, sits on top of a company’s existing IT infrastructure, making it easy to deploy.

From that point, it helps companies organize processes and automate them when possible. Such software is critical to improving efficiency in increasingly complex organizations facing rising labor costs.

Additionally, a diverse set of companies use ServiceNow for multiple purposes. Among these examples are Stellarwhich uses it to manage supply chain, human resources and financial operations. The pharmaceutical giant Merck applies technology to streamline IT operations. Such examples speak of the versatility of the software.

Moreover, these successes have made the Now platform a favorite among users. Conformable Gartnerthe company rose to #1 in several niches, including IT Operations, IT Services Marketplace, and IT Asset Management. Such achievements show that ServiceNow has gained a competitive edge over its peers.

Not surprisingly, it has also integrated generative AI functionality into its Now platform. This platform, called Now Assist, is a collection of AI-powered features that can support customer service, case management, app development, and other functions.

Customers seem to be getting more value out of ServiceNow’s functionality. Transactions involving more than $1 million rose 26% year-over-year in the second quarter, and the number of customers spending more than $1 million annually with the company now stands at 1,988.

How did he manage financially?

Perhaps the best indication of its continued success is its financials for the first half of 2024. During that time, ServiceNow earned $5.2 billion in revenue, up 23% from the same period in 2023. With the company controlling operating expenses, operating income rose 119% in that period to $572 million.

However, an $832 million tax benefit in the first half of 2023 gave net income a one-time boost that year. Therefore, net income of $609 million for the first two quarters of 2024 was down 49%.

However, analysts expect revenue to grow 22% this year and 21% in 2025, so revenue growth should remain robust.

Indeed, such anomalies do not seem to have worried investors, as the stock has risen nearly 60% over the past 12 months.

This growth has boosted valuations, as the price-to-sales (P/S) ratio of 19 indicates that the stock is not cheap. However, given that ServiceNow’s average P/S ratio over the past five years is 17.8, the stock could have room to rise from these levels.

Is it too late to buy ServiceNow stock?

Given the state of the company’s business, ServiceNow’s financials, and its valuation, it’s probably not too late for investors to buy.

Of course, with the P/S ratio above its five-year average, investors should take a more cautious approach to adding stocks, as bad news could derail the stock’s growth for a while.

However, ServiceNow appears to have stayed ahead of its competition in several areas of the enterprise software industry. As more companies turn to ServiceNow to increase efficiency, long-term investors should continue to thrive with the company.