SERVICENOW INC (NYSE:NOW) – A Strong Contender for Quality Investors

SERVICENOW INC (NYSE:NOW) stands out as a compelling candidate for quality investors, based on our Caviar Cruise screening methodology. The company demonstrates strong historical growth, high profitability, and efficient capital allocation—key traits sought by investors focused on long-term quality holdings.

Key Strengths

• Revenue and EBIT Growth: NOW has delivered a 5-year revenue CAGR of 19.47%, well above the 5% minimum threshold for quality stocks. More impressively, EBIT growth over the same period reached 100.47%, indicating significant margin expansion and operational efficiency.
• High ROIC: The company’s Return on Invested Capital (excluding cash and goodwill) stands at 26.54%, far exceeding the 15% benchmark for quality investments. This suggests NOW generates strong returns from its capital investments.
• Low Debt Burden: With a Debt-to-Free Cash Flow ratio of 0.41, the company could theoretically repay all its debt in less than six months using current cash flows—a sign of financial strength.
• Profit Quality: NOW’s 5-year average Profit Quality (FCF/Net Income) is an exceptional 596.69%, indicating that earnings are being converted into cash at a high rate.

Fundamental Analysis Summary

The company earns a solid 6/10 in our fundamental assessment, with strengths in profitability and growth but some concerns around valuation. Key takeaways:

• Profitability: High margins (Operating Margin of 12.93%, Gross Margin of 78.92%) and strong returns on equity and capital.
• Growth: Consistent revenue and earnings growth, with analysts expecting continued expansion.
• Valuation: The stock trades at a premium (P/E of 70.52), which may deter value-focused investors but could be justified by its growth trajectory.

Our Caviar Cruise screener identifies more quality stocks meeting these criteria.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.